Wednesday, December 2, 2009

Like A Hot Knife Thru Butta


"A currency that's depreciating faster than net worth in a divorce court."
- Eric J. Fry, The Daily Reckoning

Gold continues unbridled this evening reaching $1225 at 8:01PM est. as the markets in Hong Kong open. A vote of no confidence in the US Dollar echoes in all corners of the globe as the Mother Of All Short Squeezes tightens it grip on the balls of dem Rat Bastids on the CRIMEX in New York. Excuse me whilst I giggle...

The Big Gold Picture however begs me to pay attention, and not get too cocky over the CRIMEX goons demise. These criminals rise from the dead far too often. The WEEKLY chart of Gold posted above speaks for itself. There is definitely a case to be made that Gold is near an "interim" peak in price. In spite of the potential for a pause in Gold's current rise here, I believe that this leg up will continue to a minimum of 1300 by Spring of 2010.

Gold bottomed in October 2008 at 681. It then rose strongly through the Fall and Winter to peak at 1005 in March of 2009. A move of $324. Gold then consolidated this move in a long pennant formation that broke out around Labor Day at 980. Pennant consolidations often signal a continuation of the present trend and mark the halfway point of the move. Thus if we add 324 to 980 we get a "potential" Top in this leg up in Gold at 1304.

Gold will not "top out" in this leg up before Silver makes a new high above $21. LOL, given the fundamentals supporting Gold, the growing loss of confidence in the US Dollar, and the huge short position on the CRIMEX in Gold, Gold may not "top out" for a long time at a MUCH HIGHER price. But we must respect the technicals, and urge that traders use caution in Gold at this moment in time. Shorting this market, if you haven't noticed already, can be very dangerous. We urge caution for those looking to enter the market long here. Better opportunities most likely lie up ahead. If you insist on shorting this market, may God bless you. always, sit back and enjoy the ride.

Gold… Selling is the Hardest Part
By Eric Fry
12/01/09 Laguna Beach, California – Ten years ago, everyone on the planet knew gold was a “Sell.” (Incidentally, everyone also knew that JDS Uniphase and were “Buys.”) Investors scorned it. Central bankers sold it. Economists eulogized it. Today, gold is hated less…which causes some gold investors to worry that their favorite precious metal has become too popular for its own good. “Is the gold bull market about to hit a wall?” they ask themselves.

Your editors here at The Daily Reckoning have no answers – especially when money is at stake – but we do have guesses. In fact, we have a lot more guesses than money. And so we would guess that the gold bull market is far from over…very far. But having said that, we would also guess that the risk of a sudden, steep correction is far from zero…very far. In fact, an imminent correction seems like a plausible scenario.

The long-term outlook for gold remains as compelling as ever. This bull market is justified and “has legs.” But the Yellow Dog has run very far, very fast over the last few months.

The pooch might need a rest.

Gold: Bullion banks have met their match
By Dan Norcini which has taken on a life of its own and is showing signs of getting ready to make a run to $1500 and above. The region centered around $1200 is formidable resistance on the inflation adjusted price chart and gold shot right through it this morning (those December $1200 call sellers are fighting like mad to keep that contract from extending its gains above 1200). In conjunction with that, the HUI took out the 500 level so both barrels are now firing in the gold sector. Not to be left on the sidelines, silver made that tough $19 barrier look like a fig leaf this morning as it pushed above that with relative ease, making a new yearly high in the process. While it is early in the week, weekly closes above $1200 in gold and $19 in silver will set both markets up for accelerated moves to the upside next week. We will need to watch things closely as the week progresses therefore to see whether the bulls remain resolute and committed.

One thing appears certain at this point – that move by India a while back to scarf up 200 tons of IMF gold, has changed the dynamics of the gold market permanently. In addition to that, more rumblings out of China related to gold purchases as part of its reserve diversification strategy have put a strong floor of support beneath the market. The Bullion Banks, while not to be underestimated, have met their match as a new bully has come into the sand box who is not intimidated by the plethora of paper gold that they manufacture daily in the Comex pit. This new bully is not enamored with paper money as is the West and wants to own the real deal.

That brings us to the US Dollar which once again has become the whipping boy for the international Forex markets. It has critical support coming in near the 74 level on the USDX. IF that gives way, we are going to be at 72 before you can say, “oligopoly”. It will take a weekly close above 76 to stem the negative attitude towards the Dollar. Interestingly enough, yesterday’s holiday-related release of the Commitment of Traders data showed the speculator category solidly on the NET LONG side of the greenback with the big funds having just this past week moved over to that side after being net shorts since May of this year . Quite frankly, that is a set up for swift leg down if 74 gives way. Not only will be see long liquidation but a rapid move to the short side of the market by these giant funds will crush the Dollar if the technical support levels cannot stem its decline.

During the last nine years and 11 months, the S&P 500 has delivered a total return of -11%. The gold price has quadrupled.

The Federal Reserve Becomes the ‘Buyer of Last Resort’
By James Turk
November 29, 2009 – While the debate continues whether inflation or deflation will be the dollar’s eventual fate, the Federal Reserve is pursuing a pernicious policy that is insidiously debasing the dollar. This policy has generally been met with indifference, if it has even been noticed at all.

The inflation/deflation debate focuses only on the ‘quantity’ of dollars and completely fails to address an equally important monetary facet, the ‘quality’ of the dollar. The Federal Reserve is debasing the dollar by purchasing inferior assets of poor quality. These assets are mortgage-backed securities issued by federal agencies like the insolvent and for all practical purposes bankrupt, Fannie Mae.

These are assets neither the banks nor other investors want. If there was a demand for these assets, the Federal Reserve would not need to buy them. Instead of acting in its historical role as the ‘lender of last resort’, the Federal Reserve has on its own expanded its mandate to become the ‘buyer of last resort’.

By purchasing mortgage-backed securities, the Federal Reserve is debasing the dollar.

According to its latest report, the Federal Reserve now owns over $1 trillion of mortgage-backed securities, which is 45.6% of all assets owned by it. One year ago mortgage-backed securities were only 0.6% of the Federal Reserve’s total assets.

The Federal Reserve is very highly leveraged, much more than most banks. It is carrying $2,157.0 billion of debt on $52.8 billion of capital, giving it a leverage of 40.8-times more debt than capital. The mortgage-backed securities it owns are 19-times greater than the Federal Reserve’s capital, meaning that if the true value of these assets is 5.3% less than their book value, the Federal Reserve’s capital is depleted, effectively making it another insolvent institution.

Given that Fannie Mae is itself insolvent and most other mortgage generating federal agencies are not far from perilously sliding down to that same dire financial condition, it is reasonable to assume that the true value of these mortgage-backed securities is less than 94.7% of their book value. Consequently, the Federal Reserve is therefore – on a strict accounting basis – insolvent. It remains liquid because banks continue to provide it with funding and because people continue to accept in commerce and use without question the Federal Reserve’s liabilities, i.e., the paper currency it issues. But for how much longer?

On December 3rd, Federal Reserve chairman Ben Bernanke will be center-stage at the Senate for his re-confirmation hearing for another term. What should be center-stage and examined closely, however, are this professor’s chalk-board theories that he is using in his untried and untested experiments to solve the ongoing financial crisis.

Don't miss Bumbling Ben's inquisition before the Senate tomorrow. My guess is it will appear more like an episode of Perry Mason than a Senate confirmation hearing. Expect the Dollar to miraculously catch a bid going into the fray in support of the foolhardy captain of our listing economy. Equities will be in the red, and the price of Gold will taunt him mercilessly as the Senators take turns holding the high priests feet to the fire.

Senator moves to block Bernanke confirmation
By Jeannine Aversa, AP Economics Writer
On 9:19 pm EST, Wednesday December 2, 2009
WASHINGTON (AP) -- Irked by the Federal Reserve's bailout of Wall Street, Sen. Bernie Sanders of Vermont said Wednesday that he will seek to block the Senate from confirming Ben Bernanke to a second term as chairman of the nation's central bank.

For now, the move isn't expected to derail Bernanke's confirmation, but it could slow down the process.

The maneuver by Sanders, an independent, comes on the eve of Bernanke's confirmation hearing before the Senate Banking Committee.

"The American people are disgusted with the greed and recklessness of Wall Street .... People are asking why didn't the Fed intervene at the appropriate time to stop the casino-type activities of large financial companies," Sanders said in an interview with The Associated Press.

Lax oversight by the Fed as well as other banking regulators has been blamed for contributing to the worst financial crisis since the 1930s.

Sanders told the AP he placed a "hold" on Bernanke's nomination. The Senate would need to have 60 votes to override Sander's maneuver to move forward with a vote on the nomination. Bernanke probably has sufficient support to overcome that procedural hurdle