In today’s daily, Larry Edelson lays out the case for another pullback in gold and silver. He compares today’s economy to 1932-1937. A friend of ours, a first-rate hedge fund manager, commented on Larry’s outlook. He said, “Larry compares this cycle to ’32-’37 which is misleading-why? Well, for one the leverage in the system today dwarfs the 30’s. Two, the US government was not running deficits to GDP of 12-14% annually which generates false and unsustainable revenues and earnings.”
I receive numerous emails. I reprint a few. Those I don’t reprint I at least try to personally answer. You would be surprised how many emails I get that are political in nature. They are almost always seriously anti-Obama. I really try to be “non-political,” at least as far as this newsletter is concerned. I do reserve the right to vehemently argue with my very bright, well-informed and hardheaded daughter. (She takes after her father.) To “get her goat” around 9:00 last night I sent her an email that was very, very anti-Obama. She immediately emailed me back and told me exactly what I could do with that email. I emailed her back and said, “Why are you wasting your time reading my emails now, during the Republican Debate? Aren’t you interested in watching the next President of the United States?” I ended it, “I love you Betsy.” She wrote back, “I love you too dad.”
My readership is heavily conservative, but there are lots of liberals who read what I have to say as well, and I see no need to assault anyone’s views. What I am is anti-big government, especially anti-our current big-and-growing-government, and I am definitely anti-Federal Reserve. The last-two administrations, and the Fed since Greenspan, have put all of us in this awful mess. It started long before that, but the damage has escalated with Bush and Obama. Let’s face it, we are pretty much on our own at this point. All we get is more promises, by both sides of the aisle, and no effective action. Deadlock won’t fix things. Chances are, we have waited too long and the “Good Old Days,” are a thing of the past.
Ron Paul was right on the money when he said, in last night’s Republican Debate, “The debt monster will do more damage than you can imagine.” It won’t be “The End of the World,” and no, Backwoods Jack, we won’t be living in caves, but our grandchildren won’t have the same wonderful opportunities to succeed that previous generations did. That is a sad thing! The middle class is becoming an endangered species, and that also is a sad thing!
Yesterday afternoon, Susan and I stopped by a PetSmart to get supplies for little “Shuggie,” our treasured Bichon, and Susan noticed that my nephew was working behind the counter. There is nothing wrong with working at PetSmart, but my nephew is a college graduate and he spent several decades working as a copywriter. Sure, there are jobs out there, but there are millions of educated professional people who are either out of work or are relegated to working for far less money than it takes to comfortably survive on. Every one of the Republican candidates promised that they know how to create jobs. Obama also said he knew how to create jobs. Yes, and I know how to play baseball, but I will never be able to hit a curve ball. Nuff said!
There is one more type of email that I get all the time. Many of you ask for “personal” investment advice. First of all, I am not a Registered Investment Advisor, and legally I cannot offer investment advice. I am flattered that you think I can be of help, but there really is little I can say that is not covered in this newsletter. You want my advice? I’ll save you some time – here it is in two sentences: If your portfolio is primarily in “dollars,” you will have a hard time keeping up with currency debasement, especially the debasement (QE3 and beyond) that is coming. The solution I offer, and the one I take myself, is to own as many ounces of gold and silver as possible. There it is. That’s it. I publish 20-30 pages a day but this is the message in two sentences. The rest of the newsletter is interesting information and lots of current events and lots of handholding, but the theme is the same issue after issue. Kenny Loggins (one of my favorite Rock and Rollers) said it best; “It’s the same old wine in a brand new bottle.”
Truth be told, that goes for all of the newsletters, including the best of them. In my audio hobby, all of the reviews of new equipment have but one purpose – to sow dis-satisfaction. The new product always is better than the old product. To be an audiophile is to be paranoid. It took me many years to break away from the urge to constantly upgrade. In the financial newsletter landscape what you get is confusion. All of you are looking for answers – looking for the “truth.” I think you can find what you are looking for if you focus on “the Big Picture,” but if you expect short-term advice that is always accurate you will be disappointed. No one I know of is always correct. No one I know of has a perfect track record, timing-wise. No one.
Should you listen to Larry Edelson and break into a cold sweat when he tells you he expects gold to drop below $1,500 and silver to drop to the low $20s? Should you listen to industry experts like James Turk and John Embry who expect gold and silver to rocket up from here? You will listen to whoever gives you advice that you agree with. We all “preach to the choir.” We rarely change anyone’s set opinions, and if we do, it takes a long-time. Look, no one knows squat about what will happen tomorrow and that is why over 90% of all day-traders lose money. The other 10% are probably as lucky as they are smart. So, when you ask me, “Is this a good time to buy gold?” Or when you ask me, “Will silver go lower?” I may have an “opinion” but I really don’t have the answer to the short-term moves. What I can tell you with my strongest conviction is that anyone who buys gold and silver AT THESE PRICES will not regret it one year from today. Can prices fall further? Sure they can, but I for one do not bottom-shop. Nathan M. Rothschild said, “Buy when most people are selling, and sell when most people are buying.” Bernard Baruch said, “Don’t try to buy at the bottom and sell at the top.” I suggest that you take their advice, I certainly do.
Once again, gold is falling in the thinly-traded “after market.” Ranting Andy says it is deliberate Cartel price capping. Trader David R. says it is lack of liquidity. I love his phrase, “It eats like a bird and poops like an elephant.” Yes, it is an arduous climb UP that takes months and months, but prices fall like a rock on the way down. Get used to it. Take a look at the following gold chart. Two of the last three days, gold fell at the same time in the same pattern. But it rose the day before. So what does tomorrow bring? You got me. But I will tell you that the chart one year from today, which may look similar, will be from a MUCH HIGHER price point. It has been that way for the last decade. It won’t change much in the future. It has always been “two steps forward and one step back.” That is the dance, and if you don’t like it, stop dancing.
Lots will be written about yesterday’s CFTC decision to limit commodity Positions. I included comments from Trader David R in today’s daily. But I want to re-print Ted Butler’s comments (yesterday’s daily) because he is the “Position Limits” Crusader. His conclusion – it will be very bullish for silver.
Position Limits Meeting Preview
On this Tuesday, Oct 18, at 9:30 AM Eastern time, the CFTC will hold a public meeting to discuss and vote on proposed final rules on speculative position limits in those physical commodities not currently covered by limits, essentially the metals and energies. I would urge you to watch live if you are able or the recording of the meeting, which will be available the day after. Generally, the link for the webcast will go active about 30 minutes before the meeting starts. http://www.cftc.gov/PressRoom/PressReleases/pr6124-11
When it comes to the issue of position limits, this meeting is a very big deal. It will be the final meeting of a process that began two and a half years ago, when Gary Gensler was first sworn in as chairman of the agency. As many of you know, I have an intense personal interest in position limits, as I have petitioned both regulators, the COMEX and the CFTC, to institute legitimate position limits in silver of 1500 contracts for more than 20 years, as a way of eliminating and preventing manipulation. My reasons for 1500 contracts were based upon world production and consumption, individual producer and consumer levels, ability to deliver considerations and the limits relative to all other commodities, including gold. I don’t hide or apologize for my involvement and I am most appreciative for the thousands of you who have come to recognize the importance of this matter and have taken the time on multiple occasions to voice your concerns to the Commission. Thank you for helping to shine the light of transparency on this issue.
That the issue of legitimate position limits is even being debated is odd, that it might actually be rejected is bizarre and twisted. The matter of position limits is such a bedrock issue in commodity regulation that those opposed to it have no legitimate grounds upon which to stand. Being against position limits is like openly calling for manipulation.
The likely proposed formula for position limits of around 4400 contracts in silver will still be too high in legitimate terms, but JPMorgan’s short position of near 15,000 contracts is still way too large for the likely new proposed limit. It should give anyone pause to reflect on just how manipulative JPMorgan is to the silver market. At one point in the past two years JPMorgan had a short position in silver of over 40,000 contracts or more than 200 million ounces. Now it is down to roughly 75 million ounces, or 15,000 contracts, but that still is too large for the likely proposed position limits of near 4400 contracts.
So it comes down to what it has always come down to – the intent of the CFTC to enforce the law as it should be enforced. If the agency continues to look the other way and allows JPMorgan to pretend that its current short position is somehow a bona fide hedge, it won’t make a difference what the limits may be. I know that many of you, for quite justifiable reasons, feel that the CFTC will never do anything to end the obvious silver manipulation. Unfortunately, you may turn out to be correct. But, I am intrigued by the whole exercise. Did the agency and Gensler go through a bitter partisan struggle to come to the verge of finalizing position limits with no intent of enforcing what was fought over? I don’t think so. Additionally, the recent stunning and deliberate take down in price had the intended effect of allowing the commercials, including JPMorgan, to buy incredibly large quantities of silver contracts. I can’t help but think that JPMorgan sensed that real position limits in silver were coming and it had to get as much buying done to reduce its short position pronto. That’s the most plausible scenario to me. I shouldn’t have to tell you that, if correct, that’s a bullish scenario for silver prices.