Tuesday, March 29, 2011

"Fool me once, shame on you. Fool me twice, shame on me."

Fed Should Consider Curtailing Stimulus Program, Bullard Says
March 28 (Bloomberg) -- St. Louis Federal Reserve Bank President James Bullard said policy makers should review whether to curtail a plan to buy $600 billion in Treasury securities, noting that the U.S. recovery may not need that much stimulus.

“The economy is looking pretty good,” Bullard said to reporters in Marseille, France, on March 26. “It is still reasonable to review QE2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short,” he said, referring to the second round of so-called quantitative easing.

“If the economy is as strong as I think it is then I think it may be reasonable to send a signal to markets that we’re going to start withdrawing our stimulus, and I’d start by pulling up a little bit short on the QE2 program,” Bullard said. “We can’t be as accommodative as we are today for too long, we’ll create a lot of inflation if we do that.”

Talk is cheap, and actions speak louder than words.  The Talking Fed Heads speak as if they are sending a message, perhaps a warning.  They don't want any surprises should Bumbling Ben wrap up QE2 "unexpectedly".  "Hey, we told you so," will be the Fed's smug reply as the equity markets plummet along with the commodities sector as they respond to "inflation fears". 

The Inflation "expectations" of the public are high on the list of the Fed's "early warning signs" that Inflation may be getting "out of control".  Looking inside today's poor Consumer Confidence report reveals a growing unrest with consumers regarding Inflation, despite the Fed's belief that rising Food and Energy costs do not contribute to Inflation.

Inflation worries push consumer confidence lower
"Rising food and gasoline prices are starting to take their toll on the consumer psyche, and Japan's triple calamity -- earthquake, tsunami and nuclear disaster -- has been very unsettling," said Chris Christopher Jr., senior principal economist at HIS Global Insight.

"Consumers' inflation expectations rose significantly in March and their income expectations soured, a combination that will likely impact spending decisions," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.

Signs of financial strain emerged Monday in February's consumer spending report, which showed that most of the 0.7 percent jump in spending went to cover higher gas prices.

Why spending data should hurt, not help, stocks
WASHINGTON (MarketWatch) — U.S. stock indexes were higher and Treasury prices fell on Monday, signs that investors expected a stronger economy following reports that U.S. nominal consumer spending increased 0.7% in February, the fastest growth in four months. Read about how “Spending rise spurs stocks.”

There’s just one problem with that bullish view: The data released on Monday actually pointed to a slightly slower economy, due to weaker consumer spending and higher prices for energy and food.

Keeping in line with the Fed's penchant for creating booms and busts to "justify their existence", expectations will likely grow as we move forward into spring for the Fed to shut down thier QE2 as planned by June 30, 2011...if not, though unlikely, before.

"Blood in The Streets" As QE2 Could End in April?
As seen on zerohedge.com
So, it seems that QE2 will get a serious review during the Federal Reserve`s April meeting, and could be cut short by two months in order to send financial markets the message that they will not allow inflation to get out of control.

The problem is that the current market perception is at odds with the possibility that QE2 could end early.

Biased Towards Commodities
Remember, there are a whole lot of crowded trades in areas all revolving around the QE2 Monetary Program that were initiated as far back as the Jackson Hole Speech. Therefore, an early end of QE2 would bring some considerable unwinding, disproportionately biased towards commodities, as the broader equity market would still have support from increasing corporate profitability, and relatively reasonable valuations, as compared to commodities.

Off Guard Mass Unwinding
In other words, expect significant selling in commodity related funds as a result of major players unwinding large positions – the selling could go on for months if QE2 ended abruptly. This is in large part why the Federal Reserve likes to send signals ahead of time, which Bullard appeared to be doing, to prepare market participants so the unwinding of positions is done in an orderly fashion.

One thing for sure is that nobody on Wall Street is currently positioned for an ending of QE2 in April. If the Federal Reserve through its various communication channels of member speeches, media conduits, and personal interviews starts in the next few weeks reinforcing this notion of QE2 ending ahead of schedule over the next couple of weeks, i.e., sending Wall Street the ‘get prepared’ signal, one could expect a whole lot of market volatility as fund managers try to reposition themselves accordingly.

Blood in The Streets’?
Since commodity prices tend to move in unison across the board, there could be some massive selling ahead - the proverbial “Blood in the Streets”, at least for anything commodity related, where large and liquid commodity index linked funds, popular with institutional funds (pension, 401k, etc.) such as Goldman Sachs Commodity Index (GSCI), Fidelity Series Commodity Strategy (FCSSX), could see huge volatility with large liquidation.

Good Jobs Report, Bad news for Commodities
Furthermore, as the U.S. 4th quarter GDP was revised up to 3.1%, there is a fairly good possibility that strong numbers could be coming out of the unemployment report due out on Friday, April 1. Since this is the last major economic data release before Fed’s April meeting, good jobs numbers would actually be bad news for commodities, as that would add to the argument that Fed should end the QE2 early.

You, I, and the fence post over there all know that QE must continue to infinity.  Alas, but just like markets, nothing goes straight up.  QE3 will not make an appearance until their is a genuine demand for it.  Expectations are one thing, demands are another, and if the Fed excells at anything, it is meeting the demand for monetary stimulus.

I continue to urge caution with regard to the Precious Metals at the current prices.  I'll point to December's failed CRIMEX default again, and point out that it too came at the end of the fourth quarter [not to mention the year end].  The month that followed was less than kind to the Precious Metals.  Fundamentals being what they are today are not much different from those in December.  It wouldn't be the first time then that the Precious Metals "corrected" in the face of supportive fundamentals.  Do I know for certain that the Precious Metals are about to correct?  No, I do not, but I must respect the possibility. 

Believe me, for a diehard Precious Metals Bull, it is difficult to entertain the possibility that these markets are not going to go straight to the Moon. 

"Fool me once, shame on you.  Fool me twice, shame on me."  Learn to expect the unexpected, and profit from it.

Immediate support levels in both Silver and Gold have held up well this week.  $36.50 in Silver and $1410 in Gold.  On the plus side this emboldens the Bulls as it strenghtens their dip buying sentiment.  On the minus side, should these support levels giveway, the race to exit these markets could get ugly.

A couple of markets to keep an eye on specifically are the Japanese Yen and the Euro.  The Yen is on the cusp of a break lower today that will be cheered by not only the G7, but by US Dollar Bulls as well.  A break through 82.50 would be key to a Yen move lower.  The Euro is also on the cusp of a break lower today despite the anticipation of an interest rate increase by the ECB next week.  A break below 1.4027 should delight Dollar Bulls.  A breakdown in both of these currencies will be a big negative for the Precious Metals in the near-term.

The caution flag remains high on the pole this evenning, and the CRIMEX looks to have dodged default in Silver in the month of March 2011.

Sunday, March 27, 2011

When The Fed Heads Speak, Does Anybody Listen?

The general consensus of the alternative economists is that QE2 will undoubtedly turn into QE3 - 4 - 5 - ... The economy will cease to exist if QE2 is allowed to end. Perhaps this is so. But just as there was a pause in QE after round one, why is everybody so sure there will not be a pause in QE after round two?

The Fed is under tremendous pressure to cease QE2. It is being blamed for the relentless rise in commodities, particularly the rise in food costs which have lead to revolts across the Middle-east and North Africa, and energy costs. Perhaps it is necessary for the Fed to unplug the QE machine in order to create the "demand" for QE3. Hey, it worked like a charm after they shut down QE1. Remember the deflation scare last summer that was used to justify the implementation of QE2?

Think about what will happen if the Fed shuts down QE2 in June as scheduled. The strength in the equity markets and the rise in commodities has all been the result of the Fed's QE2 program. Prices began rising even before the program was officially announced following the November elections. Pull the plug on QE2 and you pull the plug on the stock markets and the commodity markets. All hell breaks loose. After the pain becomes unbearable, in rides the Fed to the rescue once again.

But who will buy the Treasury's debt if the Fed steps aside? There are many commentators and analysts rightly asking the question - "once the Fed supposedly stops buying all these Treasuries at the end of June, just who is going to step up and buy all of this US debt especially at these low yields". That's an easy answer...the same group that is buying the stocks and commodities. The banks will buy the bonds the Fed stops buying.

Where does the money running out of the equity and commodity markets always run to when their markets go down? It runs into the bond market! There's the money to buy the bonds, AND the buyers anxious to buy them.

Hey, why not?

The Fed went to great lengths this past week to telegraph their intentions to shut down QE2 in June as planned. Recall, the Fed telegraphed their intentions to start QE2 for weeks before they formally announced it. By the time they announced QE2 last November, the only question remaining was "how much money will they print and spend" once the program began. Why wouldn't they wind down the program with the same Fedspeak, but in reverse.

These Fed heads were running their mouths all week:

Fed's Fisher: U.S. Debt Situation at Tipping Point- Reuters

The U.S. debt situation is at a "tipping point," Dallas Federal Reserve Bank President Richard Fisher said on Tuesday, and urged the U.S. central bank to refrain from any further stimulus measures.

Fed’s Fisher Sees ‘Extraordinary Speculative Activity’ in U.S. on Stimulus- Bloomberg
Federal Reserve Bank of Dallas President Richard W. Fisher said he sees “extraordinary speculative activity” in the U.S. after the central bank pumped record amounts of stimulus into the economy.

“There is an enormous amount of liquidity sloshing around,” the regional bank chief, who votes on monetary policy this year, said in a speech today in Berlin. “There is abundant liquidity in the machine we know as the United States economy.”

Fed's Lockhart: High bar for QE3- Reuters
The U.S. economic recovery is on solid ground, making it unlikely the Federal Reserve will extend its bond-buying stimulus program, Atlanta Federal Reserve Bank President Dennis Lockhart said on Friday.

I remain satisfied that the current stance of monetary policy is appropriately calibrated to the current and projected state of the economy," Lockhart told the Bonita/Estero Market Pulse Conference.

Plosser Says Fed Should Detail Asset Sales While It Raises Interest Rates- Bloomberg
Federal Reserve Bank of Philadelphia President Charles Plosser laid out a strategy for withdrawing record monetary stimulus and said the improving economy means policy makers should consider how to exit.

Fed's Bullard Says ‘Pretty Good’ U.S. Economy May Allow Early End to QE2- Bloomberg
U.S. Federal Reserve policy makers should review whether to complete a second round of quantitative-easing purchasing due to end in June because of strong U.S. economic data, Federal Reserve Bank of St. Louis President James Bullard said.

“The economy is looking pretty good,” Bullard told reporters in Marseille, France, today. “It is still reasonable to review QE2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short.”

Four Fed heads step up and talk down QE2.  Ironically, the perennially hawkish Fed Head, Thomas M. Hoenig, has chose retirement:

Hoenig announces October retirement from Fed- AP
Thomas M. Hoenig, the longest serving of the Federal Reserve's 12 regional bank presidents, announced on Friday that he will retire on Oct. 1.

Hoenig, who had headed the Fed's Kansas City regional bank since 1991, has opposed the Fed's efforts to boost the economy through an extended period of low interest rates and the purchase of billions of dollars in Treasury securities.

He dissented against those policies at all eight Fed meetings last year. He argued that the Fed's efforts to spur growth could kindle future inflation.

Ain't life a bitch.

Fed Head speak about the "end of QE2" may be passed of as "just talk", ...yada, yada, yada
...  But if you expect to see QE3, you'll need to accept the end of QE2 first.  The need for QE3 may be obvious, but the demand is so far lacking.  Create demand for QE3 by crashing the stock markets, and QE3 will be here quicker than you can say "too big to fail".

Silver and Gold are at a bit of a crossroads as we move into a new week, AND the end of the first quarter.  Options on futures expire Monday March 28.  Futures expire the 29th, and first notice day for April Gold delivery in March 31st.  And on Friday, April 1st the always nefarious monthly Non-farm Payrolls Precious Metals raid.  What an interesting week we have ahead of us.

It would be difficult to hazard a guess as to the Precious Metals bias this week, and going forward into April.  I continue to urge caution when making purchases up here.  The charts posted below are focused on levels of support as a tip of the hat to our bad boy bankers:

Thursday, March 24, 2011

Be Mindful Of The Cornered Rat

Clearly our CRIMEX banking cartel is very unhappy with this weeks run up in Silver and Gold out of their breakaway gaps from Bullish Flag formations.  Reaching for the fire alarm today, they pulled a fast one and once again got the CME to raise the CRIMEX margin rates for Silver.  The banking crooks my be losing control of these Precious Metals, but they still know who to call to get the rules changed to slow things down when  they can't.  It should be noted that options on futures contracts expire early next week, and what would the lead up to options expiration be without a little CRIMEX shenanigans when the market is foaming at the top?

And Like Clockwork, CME Hikes Silver Margins Halting Surge
by Tyler Durden
In tried and true fashion, just as Silver was about to viciously destabilize the global capital markets as it surged to new 31 year highs, the CME stepped in and did its usual 3-6 half life intervention by hiking initial and maintenance margins on silver futures from $11,138 and $8,250 to $11,745 and $8,700 respectively. This is merely the latest margin hike in what appears to be a neverneding series designed to reduce speculative "fervor" courtesy of endless liquidity. What it will do is merely provide a better entry point for those who by now realize that silver's next stop in the fiat endgame is $40, then $50, and so forth. Naturally, the price drop in silver caused gold to sell off too. And now that the CME accepts gold as collateral, we can't even visualize the reflexive loops that develop once the metal that is also a collateral currency becomes more and less valuable at the same time.

This latest margin hike becomes effective at the close of business tomorrow, Friday, March 25.  In effect this little "change to the rules in the middle of the game" was instigated to force contract holders to rollover their contracts into a futures month, or sell outright...and relive some of this unwanted upside pressure on the market as we head into options expiration.

We warned of a possible Bull Trap this past Tuesday.  It remains to be seen if the trap is successful however.  So far Silver has been pushed down to it's near-term uptrend after being repelled at its intermediate uptrend line as the trap was sprung at $38.  This near-term uptrend is "safe" down to $36.50 if support their holds if tested.  Keep a close eye on Monday's open gap.

Gold has key support at $1422 as it's near-term uptrend line was broken today after it was beaten back from a new all-time intra-day high of $1447.40 in the spot market.

Reaction overnight tonight to today's beat down could have a big influence on tomorrow's trade.  With the CRIMEX goons backs against the wall here once again, and options expiration early next week, be mindful of the cornered rat.

Is it just me, or are you left scratching your head everyday lately as the US and World equity markets continue to levitate higher despite all obstacles that keep falling in front of them? 

"Pay no attention to the man behind the curtain!"

And how is it that continuing debt woes in the Euro-zone no longer have any lasting negative effect on it?  It too just seems to levitate higher.  It seems like only weeks ago that the Euro was rolling downhill like an avalanche in the Rocky Mountains, and everyone was predicting it's imminent demise.  Today it's the Dollar that is on the verge of certain collapse.  How is a collapsing US Dollar supportive of it's stock markets?

I scratch and I scratch...

For the Struggling U.S. Economy, the Hits Keep Coming -Daily Ticker

As if high unemployment, huge government deficits and the weak housing market weren't bad enough, now energy prices are surging because of unrest in the Middle East and global supply chains have been disrupted by the disaster in Japan.

Applications for unemployment aid drop slightly- AP
Fewer people applied for unemployment benefits last week, evidence that layoffs are slowing and employers may be stepping up hiring.

Or it's evidence that these numbers are a lie.  I seriously doubt this drivel put a bid under the equity markets today.

World shares recoup all of Japan disaster losses
LONDON (Reuters) - World stocks rose for a sixth day on Thursday and are now higher than when Japan's earthquake and tsunami struck, while Portugal's borrowing costs soared after its premier quit, making a bailout ever more likely.

Portugal's crisis had knocked the euro but it recovered early losses to trade a touch higher, a day after its biggest one-day fall in six weeks.

How is this possible?  Seriously!  The world's third largest economy, with a 200% debt to GDP, takes a huge blow to the nation's infrastructure, economy, health and safety...and the global equity markets just keep trucking along because of a G& Yen intervention?  This just does not pass the smell test.  I am sorry....even in the game of Monopoly this is impossible.

Euro Rallies Versus Dollar on Summit Views, ECB Rate Increase Speculation
The euro advanced against the dollar for the first time in three days as European Union leaders began a two-day meeting on measures to contain the region’s sovereign-debt crisis.

The 17-nation currency gained against the yen as speculation the European Central Bank is poised to raise borrowing costs outweighed fiscal turmoil. The euro rose even as Fitch Ratings cut Portugal’s credit rating after the nation’s Prime Minister Jose Socrates resigned yesterday. Currencies with above-average economic growth, such as New Zealand and Canada, advanced as raw material prices and equities rallied.

“What we’re doing now is buying the rumor on an ECB rate hike and then we’ll sell the fact when it materializes,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “The euro is still going to make new highs.”

How can the ECB seriously consider raising interest rates with so many of their member nations already facing problems financing their debt rollovers as interest rates rise?  Wouldn't an ECB interest rate hike only exacerbate the problem?  I guess we'll find out in early April when they meet to put up or shut up.

The Insidious Effects of Japan's Disaster
By: John Browne, Senior Market Strategist, Euro Pacific Capital, Inc.
After the EU, US, and China, Japan has the fourth largest economy in the world. Japanese industry provides many of the high-tech systems that are essential for producing relatively low-tech products such as automobiles. Already the US computer industry is being affected by shortages of vital parts manufactured in Japan.

But the financial fallout from the crisis looms even larger than the health, energy, or industrial issues. The Japanese people are stoic, disciplined, and very hardworking. Recovery in Japan is likely to be faster than many expect. However, in order to repair the flood, quake, and nuclear damage, Japan will likely need to spend trillions of dollars (hundreds of trillions of yen). This is the crisis that may sink the developed world.

For decades, Japan has deeply indebted itself through central banking strategies pioneered by America and Europe. Faced with successively deeper recessions, it has prevented industrial restructuring by funding industrial failure. By reducing interest rates to near zero and boosting government spending, Japanese governments have progressively transferred the unserviceable debts of the country's private sector to the public ledger. The result is that Japan's debt, currently standing above 200 percent of GDP, is heading for 300 percent by 2020, or some 20 times its tax revenues. Facing such statistics, the rating agencies have placed Japan on "credit watch." This leaves Japan with few options for raising the money to repair its industry and infrastructure.

If the Japanese start to draw on their national savings by selling part of their $882 billion of US Treasuries, they risk igniting a dollar-selling stampede and a damaging spike in US interest rates. To avoid this, it is highly likely that Japan will yield to American pressure not to sell any of its Treasury holdings. It is likely Japan has already been assured covertly, by the Fed and other G-7 central banks, of massive currency swap arrangements to come. This technique would allow for a more orderly repatriation of funds but would send many confusing signals into the financial markets - and lead inevitably to dangerous speculations.

For a world awash in debt, the Japanese destruction comes at an inopportune time. Unfortunately, authorities on both sides of the Pacific are as dishonest about these debt problems as Tokyo Electric Power has been about the severity of the crisis at Fukushima Daiichi.

And I just keep scratching my head...why do these equity markets keep going up? 

Toyota tells U.S. plants 'prepare to shut down'

Ships avoiding Tokyo port on radiation fears

Worst Texas Drought in 44 Years Damaging Wheat Crop, Reducing Cattle Herds

Fed posts income of $82 billion in 2010

NEW YORK (CNNMoney) -- The Federal Reserve made $82 billion in income in 2010, the central bank said Tuesday.

The Fed turns over most of its profits to Treasury in weekly remittances from the 12 regional Federal Reserve Banks to the government.

I wonder if that's how it's done?  $82 BILLION would buy a lot of stock index futures

Wednesday, March 23, 2011

BOOM! There It Is...

Bomb explodes at Jerusalem bus stop‎

Washington Post - 1 hour ago

And BOOM go Silver and Gold.  Emotions in motion... 

"Just because something is inevitable doesn’t make it imminent."
 - Doug Casey

At the risk of sounding like a broken record...caution is still advised.  The US Dollar continued to dig out of the pit it is in this morning, and looked to be about to gain some traction as it approached a pivot point on the USDX at 75.85 where it was stopped dead in it's tracks as news of the bombing in Jerusalem hit the wires. 

It is noteworthy that the Dollar sold off on the news of the Jerusalem bombing.  That is unusual Dollar behavior...as has been it's want of late.

The Euro was at it's low of the day, and for the week, when the news of the bombing hit the wires...it rallied.  Why isn't the Euro tanking on all the news about the costs of Portugese debt?  Good question.

Here is a 2-hour chart of Silver with the Euro overlayed in red...  Note that Silver and the Euro have been trading in lockstep.  The Euro is very overbought up here at 1.41, and the Dollar very oversold down here at 75.85.  Is Silver running on new buying, or just more short covering?  If this move in Silver this morning, and Gold for that matter, is just paniced shorts covering on news of a bombing in Israel be wary of price up here.  Should the Dollar gain some traction, and it will if the Euro continues to slide, the Silver and Gold markets will get even more interesting than they are right this minute.

Has the JP Morgan short position in Silver reached it's tipping point?  Stay tuned...

Tuesday, March 22, 2011


Silver and Gold gapped higher out of their respective developing Flag Patterns Sunday night/Monday morning.  These gaps out of such a pattern would normally be considered supreme signs of bullishness, however, because they came as a result of the "UN" bombing of Libya over the weekend they should be viewed with a bit of caution.  If prices do not follow thru and continue higher on these gaps, then we can chalk them up to "emotional response" and focus on a retest of the breakouts to either confirm them, or deny them.

The US Dollar, precisely at 8AM est this morning, is attempting to rise from the ashes and depths of recent despair.  The Dollar Bears are piling on now and this should give Dollar Bulls an opportunity to "buy low".  It is highly unlikely that the US Dollar is going to "collapse" anytime soon.  Well, it could, of course, but it just doesn't seem likely with a G7 coordinated Yen intervention in the works.  This Yen intervention by the Worlds most pathetic central banks is going to last more than just last Thursday' St. Patty's Day bump.  The Japanese want the Yen back up to around 85/86 on the JPY/USD cross, and it's sitting around 80 right now.

Yes, yes...the Dollar has fallen on it's face amidst all this global turmoil.  But you can blame Bumbling Ben Bernanke for that.  Nobody in the world wants to see the Dollar collapse here, so it is highly likely that something will be "coordinated" to prevent that.  The powers that be are interested in a "managed decent" in the Dollar, not an outright collapse.  It is noteworthy that Jim Rodgers, noted US Dollar Bear, is considering buying the Dollar here at these depths...but with caution:

Internationally renowned investor Jim Rogers told "Breakout" hosts Matt Nesto and Jeff Macke that he's considering buying the U.S. dollar now, but with a catch.

"We're at a moment of truth for the dollar," he says.

Rogers, who is currently long the yen, notes that the dollar has been declining despite events that would normally trigger a global flight to safety.

He says that if the dollar holds here it could rally as much as 20%, but "if it goes down 3% or 4% from here, I would have to sell and get out and hope I'm still solvent."

The Euro is breaking down from a Bearish Rising Wedge on it's daily chart this morning after EU finance ministers unveiled their latest debt fighting strategy yesterday.  It is noteworthy that the Euro yesterday rose back to the early November closing high of 1.422.  This might be significant because from this level last November, the Euro collapsed by 18% over the next 2 1/2 weeks.  A dump in the Euro from this level again would certainly bolster any rally the US Dollar might be "planning".

I am a die hard Precious Metals Bull, but at times even the most stubborn bull must respect the possibility that his market may be getting tired in the "near-term".  I have been cautious about the Silver market since the week leading up to it's recent high of $36.73.  In spite of all the "supportive" geopolitical turmoil in the world today, I am still cautious on Silver here.

The Silver Bulls are salivating right now, and this concerns me.  The Bull's side of the boat is getting too full, and when that happens it is more than likely to tip over.  Is this the "top" in the Silver market?  Absolutely NOT.  Is this a point where the Bulls need to pause, rest and recharge?  Quite possibly.  If not at this point here and now, I suspect soon enough we will see a reaction lower in Silver and the Precious Metals.  Particularly if the US Dollar can mount a rally out of the hole it finds itself in right now.

Much has been written on the Internet recently about the delivery issues surrounding the March futures contract.  It can not be denied that deliveries for this month are far behind where they should be, much like in December 2010 when stories of a CRIMEX default were rampant as I can personally attest.  But if there is really a critical shortage of physical Silver to meet delivery demand, why have lease rates on the metal remained so low throughout the month?

Low lease rates typically signify high liquidity in the market.  High lease rates therefore signify low liquidity in the market.  Lease rates for Silver have fallen throughout the month as Silver has traded in a three Dollar range between $33.75 and $36.75 the past three weeks.  IF there is a shortage of physical Silver, it has not been confirmed by rising lease rates.  You can see Silver's lease rates here.

Jeff Snider, Atlantic Capital Management, commented in a piece he wrote Friday about the perceived physical shortage of Silver and it's lease rates:

We have been watching the price action for silver as it has related to demands for the physical metal in the futures market (see our article from February 24). The delivery month of March saw fewer contracts stand for delivery than did December (although fewer cash settlements thus far), but the lack of actual deliveries so far into the month continues to point to a lack of available metal.

According to available figures from the Comex, there were funds deposited at the February notice dateequal to demand for physical delivery of about 9.5 million ounces of silver. That is not a massive withdrawal demand for an exchange that shows dealer inventory around 100 million ounces. Yet, as of March 17 only half of that demand has actually been fulfilled (futures contracts specify that delivery is contractually obligated to occur before the end of the month).

If there is not enough available metal it seems that sellers would be forced to lease physical silver to satisfy demand. But we have seen lease rates decline modestly throughout the month (after moving sharply higher in February). This means that there may be a potential jump in leasing rates as the month end draws closer, which would confirm the lack of available metal.

The spot price of silver seems to have found a floor at $34 per ounce despite all the liquidity unwinding related to the yen. This is also a sign of tight physical markets since investors on the long side refused to give up their positions in the face of both uncertainty and heavy volatility.

Low lease rates, and a lack of demand to borrow Silver can also be interpreted as a sign that shorting of the commodity's price has dwindled.  A capitulation by the shorts?  This would be very bullish indeed.  But it would also require one to "trust" the goons on the CRIMEX.  Earlier this month, Ted Butler confirmed JP Morgan increased their Silver short position by 6000 contracts in February.  That doesn't look like capitulation to me.  It looks as though JP Morgan may be loading for Bear.

JP Morgan has a vested interest in keeping Silver prices below $36 an ounce.  Any substantial rise in price above this point would potentially cost JP Morgan BILLIONS of Dollars, and possibly put the banks solvency at risk.  We learned this about JP Morgan last November when Wynter Benton's Friends Of Andrew McGuire were attempting their December delivery assault on the CRIMEX:

"WB: JPM is in worse shape then we ever dared to hope 20-Nov-10 07:06 am

This is what I am now hearing from traders on the floor. These traders are not even sure if Blythe knows the full extent of JPM's silver exposure.

When I first started to realize that JPM has shorted far more silver than they could ever hope to cover, my first question was "why would they do that?" Not only that, why do it with a commodity where you must report your positions through the COT and Bank Participation Report? After all,the whole world can see what you are doing. [my added comment: Ted Butler included!]

Now I know the answer. According to Max Keiser and now a couple of other independent sources, it seems the reasons why first Bear Stearns and now JPM are so desperate to manipulate the price of silver down is due to the fact that BS and JPM shorted billions (yes billions not millions) in ounces of silver through their derivatives.

Just like Joe Conason at AIG, silver shorting through derivatives have caused literally billions in losses not the millions that we know about publicly. That is why JPM has been so desperate to manipulate the price of silver downward so blatantly. If I am right about this, then JPM will be dead when silver hits $60 or so. Based upon the COT and BPR, if silver hits $60, JPM will lose around an additional $6 billion dollars, a large number but not nearly large enough to bring down mighty JPM.

But what is not known is that due to the way that its derivatives are written, JPM's losses are exponentional once silver breaks $36 or so. Rumors has it that JPM could be losing as much as $40 billion once silver is above $50. It has something to do with how the derivatives are written with payment tied to the price of silver.

Since JPM was a price manipulator with respectt to the price of silver, JPM assumed that any derivative payments tied to silver would be less than they would be tied to some other index like the CPI or TIPS implied inflation index. JPM's inability to hold down the price of silver relative to other measures of inflation will cause unbelievable losses due to a mismatch in their derivative structures.

In essence,JPM has bet (a huge amount)through derivatives that silver will never outperform inflation. And why not,since JPM assumed that it will always be able to manipulate the price of silver. We have now come to understand that JPM's loss exposure to silver is much greater than we have ever dared to hope.

WB: In an effort to clear up some recent confusion regarding my latest posting, I will try to explain what I have recently uncovered.

JPM's current short silver position is estimated to be approximately 150 million ounces down from the recent 180 million ounces in August. The losses from these positions are easy to figure out. For every $10 rise in the price of silver, JPM will lose $1.5 billion. But what I have recently discovered is that through its derivative positions, JPM will lose about 5 times that amount ounce the price of silver is above $36. And ounce silver is above $45 dollars, JPM's losses will increase to 8 times the amount of losses in their short positions. The reason is that as the price of silver increases, certain provisions get activated which multiplies the losses.

One reader asks the question why isnt the price of JPM going down to reflect the lossesd in silver. My answer is that the price of silver is not high enough to begin to trigger losses in their derivative positions. But once silver approaches this critical level say around $36, then you should begin to see the price of JPM stock begin to reflect these losses.

In fact, traders are saying that once the price of silver surpasses the stock price of JPM, then for every dollar the price of silver go up, JPM should lose around 70 cents or so. This means that if silver hits $60, JPM will be a single digit stock.

JPM market cap is around $170 billion. If silver losses are as great as $40 billion in cash , then JPM will be insolvent. Period.

From your former traders (whom you dismissed so callously)"

And we wonder why Silver has been engaged in battle here at $36 an ounce since March 6th when it rose overnight to $36.73 an ounce to the complete dismay of JP Morgan and their banking goons at the CRIMEX.

Despite Silver's Bullish move here, I must remain cautious.  With Silver's rise back to it's recently broken uptrend line, a Bull Trap may may be setting up for the Bears to attack.

Traders, proceed with caution.

Thursday, March 17, 2011

Is The Yen Intervention Just Another Global Financial Band-Aid, Or The Launching Pad For A Global Hyperinflation?

What is it about St Patrick's Day and global financial shenanigans?  Is "shenanigans" Irish?  March 17, 2008, Bear Stearns blows up, and the US Fed rides to the rescue of the global financial community along with the ever nefarious JP Morgan.  The world commodity markets tank, and the Silver and Gold markets take a ride down the elevator shaft.

Today, March 17, 2011, and in the wake of Japan's National Disaster Trifecta of an earthquake, tsunami, and nuclear meltdown, the U.S., Germany, France, Canada, Italy, the U.K. and Japan decide it would be a great idea to jointly sell the Japanese Yen to once again keep the world financial system from unraveling.  Heaven forbid Japan have a strong currency when facing overwhelming reconstruction costs.  Better to beat down their local currency, so that the materials they will need to import to repair the nation cost more. 

Brilliant!  What could be more inflationary? 

I know, I know!  How about a $700 BILLION cash infusion?  As if $700 BILLION in cash with untold BILLIONS to follow in Bank Of Japan QE wouldn't weigh on the Yen enough, they have to invite all of the other failing Western financial systems to a beat down the Yen party.

Now that the uncertainty of a Yen intervention has passed, it would not surprise me to see Silver and Gold now head straight for the Moon.  Overbought bullish sentiment be damned!  If there wasn't any Inflation before this Japanese catastrophe, the certainly is going to be a tsunami of it now!

We'll have to see how this plays out overnight, but the knee jerk reaction in Silver and Gold since the intervention began at 9:34AM Tokyo time is to the upside.  Gold and Silver sat virtually still all day awaiting news of this Yen intervention.  The news has arrived...

G-7 Sells Yen in Its First Joint Intervention Since 2000
March 17, 2011, 8:48 PM EDT
By Toru Fujioka and Mayumi Otsuma
March 18 (Bloomberg) -- The Group of Seven will jointly intervene in the foreign exchange market for the first time in more than a decade after Japan’s currency soared, threatening its recovery from the March 11 earthquake.

Japan began the effort, sending the currency down 3.1 percent against the dollar at 9:34 a.m. in Tokyo. Each of the G-7 members will sell yen as their markets open, Japan’s Finance Minister Yoshihiko Noda told reporters in Tokyo today. The G-7 said in a joint statement after a conference call of its finance ministers and central bank chiefs that it will “provide any needed cooperation” with Japan.

Japan’s central bank also said in a statement that it will pursue “powerful monetary easing” as policy makers sought to reduce the threat the world’s third-largest economy sinks into a recession. The Nikkei 225 Stock Average gained after the announcements, paring losses to 12 percent since the quake and ensuing tsunami killed thousands and led to rolling blackouts and radiation leaks at a nuclear plant.

“It will be supportive for the economy if they can manage to stabilize the yen,” said Thomas Harr, Singapore- based head of Asian foreign-exchange strategy at Standard Chartered Plc. “You will have better chance of succeeding when you have the joint intervention rather than just Bank of Japan.”

Conventional wisdom would have it then that a Yen intervention would be bullish for the US Dollar, and negative for Precious Metals and Commodities...but will it?

Yen intervention friendly towards the Yen carry trade
Dan Norcini, commentary
One of the reasons that leveraged carry trade positions explode is a rally in the underlying currency which has financed the trade. In this case, it is the Japanese Yen which has been the funding currency. Those who put on this sort of trade are effectively short the Yen because when they exit the trade, they have to close out the positions that they financed and then buy Yen to pay back the original loan in Yen terms. As the funding currency rallies, they begin losing money because they are forced to pay a higher price for the Yen when they do the foreign currency exchange.

When we saw the Yen begin rallying sharply this past week it set off a cascade of unwinding of the carry trade as hedge funds dumped both stocks and commodities that had been purchased and then leveraged up as risk trades were quickly going underwater.

It now appears that the Bank of Japan has secured the cooperation of the entire G7 in knocking down the Yen which most agree had soared to levels that were nowhere near commensurate with an accurate valuation of the currency given the fiscal condition of the nation.

If it now appears that the G7 agrees to keep the Yen at bay then it could well be that the same hedge funds that were blowing out of their carry trades will be eager to reinstate them since they will feel that they have an effective upside cap on the Yen thus eliminating an element of risk in the trade.

If the nuclear plant situation in Japan can indeed get stabilized, that, combined with the cap on the Yen, could be the signal for the hedgies to pile back into the carry trade. It would not surprise me to learn that the BOJ would actually welcome such an event because it would keep a lid on the Yen and would thus serve their purposes of preventing the Yen from strengthening.

I would therefore view this as setting in place the factors necessary for keeping gold and silver well supported in price again. We will see how the market is interpreting these events in the trading that takes place over the next few trading sessions.

Mind you, it is the unwinding of the Yen carry trade that has pressured commodities and the Precious Metals this week.  However...it should be noted that the Precious Metals were looking tired prior to the earthquake in Japan.  The ensuing uncertainty surrounding the catastrophe has helped take a bit of the boil off the Precious Metals and emboldened the shorts.  Any rush back into the long side of these markets could result in a major short squeeze.  This looks particularly possible in the Gold Arena:

This Silver chart looks similar to Gold's this evening as it too is running higher as the uncertainty of Yen intervention has been lifted.  If Dan Norcini's commentary above proves accurate, a lot of Silver positions that were unwound this week because of the Yen carry trade imploding may be about to be reinstated.

A comment by Harry Organ in his Daily Gold & Silver Report caught my attention:

The front March delivery month saw its OI fall only by 25 contracts to 1054 from 1079 despite 57 deliveries yesterday.  The next front month of May saw its OI fall from 79,026 to 77,188.  It is a little strange that so many are rolling early into the July contracts.

An experienced options trader commented to me this afternoon:  "Get out of Silver."   When I replied that I had just closed a short position he said, "Bah!  The spread is where to make big money right now.  Sell near and buy far."  For what it's worth...  I remain wary.  The CRIMEX goons are in a world of hurt going this far into a delivery month with over 1000 contracts remaining to be filled.  The term "shenanigans" could yet be redefined by this front months end.

Noda may want to keep the capital flowing
By Robert Fullem
However, a recently published WSJ article about the nuclear liability has the government picking up the tab for most of the damage citing a Japanese liability law about natural disasters.

A government "bailout" seems to be a reasonable assumption given the circumstances though private reinsurers in the UK, Europe, and US will certainly cover some of the costs. Given the high policy premiums, it is reasonable to assume that the currency position of the policy is already hedged. If they are not, the net FX impact of premium payments should be easily absorbed.

On repatriation, the assumption is that both retail and institutional accounts will sell overseas assets to pay for emergency needs and reconstruction efforts. To the contrary, there was little evidence of this after the Kobe quake in 1995 and there is little evidence of it to date.

A more likely scenario has the government stepping in with a large supplementary budget and the BoJ absorbing it thus enhancing liquidity.

To this end, the BoJ has already pumped in JPY31trn in an effort to keep rates low. Liquidity is the BOJ's primary concern at the moment as it does not want to a repeat 1995 or have electricity outages impact trading volumes or ATM withdrawals. A few JPY here or there in a speculative FX markets will not make a difference.

Further down the road, it is the JPY's impact on inflation that will be the BOJ's primary concern, particularly as food prices move higher. If anything, the tragedy may have appropriately forced BOJ's Shirakawa, a cautious spender, into a looser monetary policy ensuring Japanese reflation.

In other words, the Bank Of Japan will follow Bumbling Ben Bernanke down the QE wormhole that leads to hyperinflation.  [After all, the Japanese invented QE.]  With the number one [US] and number three [Japan] global economies both running their printing presses overtime, and willfully devaluing their respective currencies, the road to hyperinflation may now be paved curb to curb.  All this to save the Yen carry trade.  The Yen carry trade is the grease that spins the wheels of global high finance.  This evenings yen intervention is ALL ABOUT saving the Yen Carry Trade.  Commodities and Precious Metals traders may well soon begin to rejoice...time will tell.

The knee jerk reaction to this evening's Yen intervention announcement is a rise in the Precious Metals and Commodities.  I'd like to see them get some legs and breakout of these Flags before I jump on the "The Yen Carry Trade Is Saved" band wagon.  Things must be pretty precarious here in the financial markets for the G7 to sanction this coordinated action in the currency markets.  The reactions here in the Precious Metals and Commodities, and going forward, may not end up being as dramatic and severe as they were following the banking shenanigans on March, 17 2008, but a correction in the price of Silver is still warranted "technically".  Whether or not it comes here, or from a higher perch...it should be expected, not "unexpected".

This is not 2008
Dan Norcini, commentary
"The difference between what happened to commodities and other assets in 2008 was that the Fed was not engaging in any form of QE at the inception of the crisis. It could well be that we now have QE3 set in stone."

Wednesday, March 16, 2011

Japanese Earthquake Unleashes Financial Hurricane

Alert: Nuclear (And Economic) Meltdown In Progress
From Chris Martenson via ZeroHedge
For decades, the world has been running its own nuclear-style reaction, only in the currency and debt markets, where exponentially-accelerating piles of debt and money have spun about faster and faster in a gigantic, complex, coordinated reaction, the core of which is, and always has been, the United States.

At the very center of this ungainly money reactor is the main fuel pile itself, the US Treasury market. With any interruption to smooth flow of money through this pile, it will immediately become unstable.

The threat I see goes like this:

Stage 1: The world watches, riveted, as Japan suffers a tragic and horrible earthquake and tsunami, but as horrifying as these are, they are localized phenomenon affecting a relatively small percentage of the country. The real trouble lurks within damaged nuclear plants, which are now ruined and will never again produce electricity for Japan, creating instant shortages that will take years to remedy. Worse, a dangerous plume of radioactivity is carried south by winds. Tokyo partially empties and shuts down for all practical purposes.

Stage 2: The abrupt slow down of the world's third largest economy alters the smooth flow of cash around the globe, and even causes reversals of some other long-standing flows. Chaotic eddies emerge in a decades-old pattern of ever-increasing flows of money into and out of the money centers, and various carry-trade and other interest-rate-sensitive strategies blow up. Manufacturing in Japan screeches to a halt, disrupting just-in-time manufacturing strategies both internally and across the globe.

Stage 3: In order to fund the rebuilding effort, Japan has to buy a lot of items from foreign suppliers at the same time that its exports plunge precipitously. At first Japan simply does not participate in US Treasury auctions, leading to a shortage of buyers. But eventually Japan has to sell some of its vast hoard of US bonds in order to pay for external items needed for its reconstruction. Further, insurance companies, huge holders of US bonds, face stiff liability claims in the wake of the worst natural disaster to hit a heavily industrialized center and are forced to redeem enormous amounts of Treasury paper. US Treasury yields begin to climb.

Stage 4: Continuing unrest in the MENA region serves to keep oil elevated and local funding needs high, while Europe's weaker players (the PIIGS) continue to slip under the waves. Money continues to ebb away from the US Treasury market. Forced by circumstance, the Federal Reserve reverses its linguistic course and opens the monetary floodgates once again. There's nothing like a crisis to justify more money printing, especially to a one-trick pony (the Fed) that only knows how to stamp its hoof on the 'print' button.

Stage 5: An increasingly chaotic monetary and fiscal situation spills over into the derivatives arena, creating a number of financial accidents. Stressed governments find themselves in more of an arguing mood than a pull-together-and-sing-Kumbaya mood, and agreements are hard to come by. Banks begin to fail again, global trade falls off, unrest continues to build, and then it happens - a currency crisis.

Stage 6: Everything changes. Faster than you think.

I wish I could completely quantify and justify the reason for this assessment, but I cannot at this time. Yes, we've got some very serious market turbulence to point to:

All I have to offer this evening are these daily charts of Silver, Gold and Palladium.  That, and two words of advice:  Caution and patience.

Crawling From The Wreckage

Japan market bounces back, lifts world shares- AP

Bank of Japan emergency funding hits nearly $700B- AP

I wonder if the two headlines are related?

There is nothing like a $700 BILLION shot in the dark to levetate a sinking equity market.  The Japanese Central Bank has raised the financial bailout bar to new heights.  In the end though, this fiat transfusion will likely prove to be the equivalent of a butterfly bandaid on a sucking chest wound.  How much of this funny money will actually find it's way into relief efforts, or will it all go to prop up it's crumbling Nikkei Index.

Foreign bankers flee Tokyo as crisis deepens- Reuters

I guess even banksters have a price...their life!  When the rats are leaving the ship, it must be sinking pretty fast no matter how much money is being thrown at it.

Stocks hit by Japan fears despite Nikkei rally

LONDON (AP) -- Shares around the world failed to capitalize on a bounceback in Japanese stocks Wednesday amid concerns about an escalating nuclear crisis in the wake of the country's devastating earthquake and tsunami.

Japan's benchmark Nikkei 225 stock average closed up 5.7 percent at 9,093.72 as investors snapped up bargains after panic selling sent the index spiraling down nearly 11 percent the day before.

Another massive monetary injection from the Bank of Japan -- to a total of almost $700 billion in short-term loans -- and an indication from the government that it could buy into the stock market also helped shore up the Nikkei. On Tuesday, the index closed at its lowest level in almost two years after shedding 16 percent over two days, its biggest two-day retreat in forty years.

Free cheese coming to an equity market near you soon.  This "black swan event" that has occurred in Japan is not something that can be easily dismissed by printing money and happy talk by the talking heads on financial TV.   With the unexpected comes a mountain of uncertainty.  Climb the mountain with caution.

Oil prices rebounded sharply overnight as the unrest in the Middle-East and North Africa regained some of the global headlines.  It's old news and supports Oil prices on their dip here.  Unless the crisis in the Middle-East escalates dramatically, Oil should remain a bit range bound near-term.

Silver and Gold have caught a small bid this morning on the back of Oil's rise as would be expected.  It will be interesting to see if our cornered CRIMEX rats can press the Precious Metals further here and take advantage of this global crisis situation.  By all rights the Precious Metal should've been soaring out of the gate this week, but the ring masters want none of that.  This is their opportunity to swing their Ugly Stick with impunity.

The real news behind the news this week is the US Dollar's reaction, or lack of, to this catastrophe in the World's third largest economy.  The Dollar has basically stood by the side of the road like a deer in the headlights.  It's reaction to the crisis muted uncharacteristically.  Is this a sign that the Dollar's days as a safe haven are waning?

The Dollar as a Safe Haven?
Dan Norcini
Given all the turmoil and market uncertainty associated with the tragedy in Japan, not to mention continued unrest across the MENA, it is again very telling that the US Dollar cannot seem to maintain any sort of strong safe haven bid.

Instead it is the Swiss Franc that is the main beneficiary of such flows.

We keep seeing this type of pattern during periods in which risk aversion is the order of the day. The Dollar initially gets the knee jerk safe haven bid and then runs out of steam as sellers look to take advantage of the rally. I am hesistant to be too dogmatic with all this insane volatility but I am wondering if we are already beginning to see the global investment community voting with their feet against the Dollar remaining as the sole reserve currency.

Fed Signals Further Stimulus Unlikely as Recovery Strengthens
By Joshua Zumbrun
Federal Reserve officials signaled they’re unlikely to expand a $600-billion bond purchase plan as the recovery picks up steam and the threat that inflation will fall too low begins to wane.

The economy is on a “firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Federal Open Market Committee said in a statement yesterday after a one-day meeting in Washington. While commodity prices have “risen significantly,” inflation expectations have “remained stable.”

U.S. equities pared losses as Fed policy makers looked past threats to growth such as higher oil prices, unrest in the Middle East and the earthquakes in Japan. Their statement reveals confidence that the plan to buy Treasury securities through June will be enough to achieve the self-sustaining expansion that they say is vital before reversing record stimulus, said analysts including Josh Feinman, global chief economist for DB Advisors, a unit of Deutsche Bank AG.

What wonder of spin doctoring this is...the Fed said no such thing, and inferred even less.  If anything they stuck to their guns, and insisted they will contiue to bu treasury debt.  They continued to lie about the effects of their actions on Inflation, and for the most part continued to blow smoke up the asses of anybody that will listen to them.

The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations.

Transitory?  You got that right fellas.  Inflation is going to transfer this make believe recovery into a full blown hyperinflation ending in a depression...all in time.

FOMC STATEMENT  read the Fed statement...  Where does it say they will stop stimulus?  How can they stop?  Who is going to buy the Treasury's debt if the Fed doesn't?

Fed says economic recovery on firmer footing- AP

Why, just because they say so?  I guess they had their TVs off all weekend...

Monday, March 14, 2011

The Uncertainty Of Catastrophe

Forgive my silence...

We have all seen and followed the news since early Friday morning.  The earthquake in Japan is a MAJOR GLOBAL CATASTROPHE.  The effects of which nobody can be certain.  Silence seemed appropriate at the time.  But the past two days have allowed much thought...

"The next day we got the news of the San Francisco earthquake.  It was an awful disaster.  But the market opened down only a couple of points.  The bull forces were at work, and the public never is independently responsive to news.  You see that all the time.  If there is a solid bull foundation, for instance, whether or not what the papers call bull manipulation is going on at the same time, certain news items fail to have the effect they would have if the Street was bearish.  It is all in the state of sentiment at the time.  In this case the Street did not appraise the extent of the catastrophe because it didn't wish too.  Before the day was over prices came back."
  -Jesse Livermore, Reminiscences Of A Stock Operator, chapter six

I had the misfortune of being caught completely out of the Precious Metals markets on Friday...or so I thought, as the market suddenly bottomed and raced higher throughout the day.  I wasn't happy that my bid for Silver sitting at $34 was not hit, and that Silver appeared to take off without me. 

Opportunity missed?  Perhaps a quick trade opportunity was missed, but the euphoria in the Precious Metals markets after Silver and Gold's price reversals Friday may have been grossly misplaced.

After the markets had closed for the day, and the dust had settled...so to speak...I had an opportunity to get to my charts, ponder the days events, and think about what could be next.  I have been thinking all weekend.

The first thing I did was call my broker late Friday afternoon and predict that, come Monday, this "rally" in the Precious Metals was going to reverse, and that we would see prices lower than they were Friday morning soon.  That was my gut instinct. 

Prices in Silver and Gold had rallied back to the points they had broken down from earlier in the week  $35.93 in Silver, $1423 in Gold, and stopped.  In a tired and toppy market, a rally back to broken support is often an excellent opportunity to short that market.

"Perish the thought," you say.  Short the raging Precious Metals Markets?  Yes.  Strip away the emotion of being caught up in a Bull Market, and the "wall of worry" these Precious Metals have climbed of late becomes a "leap of faith".

If you have been following my blog lately, then you know I have been wary of chasing Silver at these prices up here since last Saturday's post When Things Look To Good To Be True... .  My focus has been on Silver, and not Gold recently because it has been in overdrive and outperforming all of the Precious Metals.  Historically, Silver runs it's hardest at just about the time Gold is reaching an interim top.  And Silver has been running so hard of late that it is bound to be out of breath.  Gold has been sluggish since it first broke $1440 at the beginning of March.  Recent volatility in the Precious Metals has also signaled an interim top may be forming here.

That being said, and after much thought and reflection the past two days, it would not be out of the question to see Silver fall here in the short to mid term by 15 - 20%.  Not only Silver, but Gold, Commodities, Equities...everything.  And wonder of wonders, see a rising US Dollar.  The Dollar is still the world's reserve currency, and global crisis tends to have historically lead to a strong Dollar during periods of "uncertainty".  And if ever there World were facing a period of uncertainty...O, MOMMA!

The weekly chart of Silver is looking suspiciously like the run up to the Bear Stearns collapse in March of 2008. That was a massive short squeeze in Silver that was stopped dead in it's tracks by the Fed and JP Morgan. Yes, things are different now, but the crooks rigging the game are the same...and they are in the midst of a massive short squeeze today.  --March 5th blog post

Yes, the fundamentals of the Precious Metals are what they are...the same is true in spades for the US Dollar.  But the same fundamentals where in play when Bear Stearns blew up in March of 2008, and Silver and Gold collapsed in the face of what should have been a meteoric rise.  Is Friday's catastrophe in Japan any different?  We are about to find out.

Quake to Test Japan's Economy, Markets
The history of rich countries recovering, albeit painfully, from large natural disasters is encouraging. The resilience of Japan after the 1995 Kobe earthquake is the most obvious—and encouraging—example.

The question hanging over Japan and the rest of the world: Is this time different?

Will physical damage, particularly the still-uncertain fate of nuclear-power plants, be more difficult to repair? Has globalization made the world more vulnerable to one big economy? Will the weekend's jarring videos and headlines from Japan, combined with unease about the Middle East and Europe, undermine financial markets already distrustful of global governments' ability to repay debts?

This post for Le Metropole Members from Bill Holter Served at The Dos Passos Table on this nervous Japanese weekend, titled, "What now? I am not sure.", offers some points to ponder as this week opens:

What now? I am not sure.

To all; the earthquake, tsunami, massive destruction and potential meltdowns of several nuclear reactors have back burnered Arab riots, monetary and fiscal bickering and drownings in Europe and the fiscal awakenings in several U.S. states and on the federal level. Of course Wall Street’s reaction on Friday was to levitate in the face of probably the worst natural disaster in 100 years or more (what else would you have expected?). Left on their own, markets will collapse because a very major link in the financial derivatives daisy chain has now broken. The fact that ALL markets are NEVER “left to their own” anymore, your guess is as good as mine as to how the markets will react.

My immediate thought process is that Japan will not be able to perform on many of it’s obligations meaning that “force majeur” and bankruptcy will be claimed in many instances. Oil may drop because immediate demand will slacken, copper, lumber, steel, cement etc. may initially drop in a deflationary wave but demand will eventually explode as Japan’s need for these products comes on line for rebuilding. The ramifications are mind boggling and confusing to me at this point. U.S. Treasury supply (read necessary purchases by the Fed) will explode as Japan will surely be a seller to repatriate necessary capital for rebuilding. Not that the Fed had any ability (pre earthquake) to stop QE never mind actually withdraw funds (actually tighten) but now global QE will need to ratchet up even more.

I am sure that bearish stories will abound for Gold pre market tomorrow and may persist for a while, please keep in mind that monetarily and financially the earthquake is a disaster on a global basis. What had been such a buzzword “globalization” will now be hidden from public view. Financially and monetarily the world is globalized and nearly everyone IS sleeping in the same financial bed, TPTB will do all they can to disavow this fact and spin Japan as the tragedy that it is but not one with far reaching ramifications. Don’t believe this if you value your financial life! When all is said and done, central banks far and wide will need to pump currency as hard as they can to cushion this disaster. GOLD BULLISH in the long run!

As I said before, I am confused. TPTB may “use” this situation as an “excuse” to allow what has been the inevitable, ie. collapse of the entire system. They may have no other choice. ANYTHING can happen from here, equities rally or collapse, the Dollar rally or collapse, the same for commodities. I am sorry for not having a handle on this but as fragile as the entire system was, it is now even more tenuous. I can envision nearly any scenario from here but as interconnected as the financial markets are I would expect “failures” of all sorts within a couple of weeks. Japan is a HUGE link in the western banking chain that has broken because of economic paralysis. Will we witness bank runs in Japan? Food is already being hoarded and shelves are emptying, gas and electricity are being rationed, does this go global because of a derivatives meltdown? In my mind the question is whether or not “failures to perform” by Japanese institutions (banks and insurance companies) will lead to more global failures.

As stated I don’t have a handle on this but my fear is that this will lead to financial failures at a time when the global population was already pissed off and ready to explode anyway. The best I can tell you is to be ready for anything, ANYTHING, no matter how remote it may seem. Make sure you are supplied to survive a financial disaster equal to the natural disaster that Mother Nature has just wrought. Remember, distribution does not occur if banks are not open. I will obviously write more on this as it becomes more clear to me. Regards and prayers, Bill H.

But the timely piece of journalism that really caught my eye this weekend comes from Adam Hamilton of Zeal Intelligence.  Few analysts have a more emotionless view of the markets than this maestro.  He has taught me plenty, and his way of "looking at the markets" is one of the main reasons I became so wary of Silver prices here at $36 an ounce last weekend. 

I am a die hard Precious Metals bull, but even the strongest bull must take a rest.  Friday's earthquake in Japan may be just the "catalyst" to allow our raging bull a much needed rest.  Yes, "everything" tells us Silver and Gold should blast higher here...but what if they don't?  We must prepare ourselves if they don't...  Adam Hamilton's perspective on the Silver market below is a MUST READ:

Silver Toppings 2
Adam Hamilton, Zeal Intelligence, Zeal LLC

After soaring 35% in just 6 weeks, silver has driven trader enthusiasm to a fever pitch. Naturally after such a magnificent surge to new multi-decade highs, silver bullishness is off the charts. Expectations for continuing near-parabolic gains are nearly universal, with ebullient commentators coming out of the woodwork to predict spectacular near-term price targets.

This exuberance is certainly understandable, traders crave big gains which silver can provide in spades. I’ve been a big fan of silver for a long time. Way back in November 2001 when silver traded just over $4, I started recommending physical silver coins to our newsletter subscribers as core long-term investments. Boy let me tell you, back then almost no one was bullish on silver as this secular bull was being born!

Since then, we’ve realized 108 silver-stock trades in our weekly and monthly newsletters. Across all of them, which include all losers and the brutal stock panic’s impact, our average annualized realized gains ran +45.3%. After this decade of successful silver-stock trading, a critical lesson dominates my mind. Like all bull markets, silver doesn’t march up in a straight line forever. It flows and ebbs. Though its bull indeed powers higher on balance, silver’s massive uplegs are followed by brutal corrections.

Now if you are crazy enough to subscribe to this theory that the silver zealots think is heretical, that silver is not going to soar indefinitely, then doesn’t it make sense to look for toppings? At some point after a massive upleg, silver is going to need to correct. Period. It doesn’t matter how bullish silver’s fundamentals may be, how greedy silver enthusiasts get, or what is going on in the physical silver market.

Silver corrected hard in the past despite bullish fundamentals, wildly-bullish enthusiasm, rumored supply shortages, tightness in certain coin markets, foreign buying, and every other silver-to-the-moon argument getting rehashed today. In fact, the more bullish, optimistic, and enthusiastic investors and speculators get, the greater the odds for an imminent sharp correction. These psychological conditions seduce in everyone interested in buying anytime soon. Once they are all in the rally burns out, and only sellers remain.

So how can we recognize dangerous topping conditions in real-time? By studying silver’s technical and sentimental conditions at its well-known past major interim highs. If you know how past silver toppings played out, then you can identify current episodes where the probabilities heavily favor a correction. And this is priceless knowledge to have, as silver’s corrections are wickedly fast, large, and unforgiving.

As Billy Joel once said, "I may be wrong, but I may be right."  It's very difficult for me to think negatively about the Precious Metals, and particularly Silver, but if the past has taught me anything it's that an emotional attachment to a market can be crushing.  IF the markets should turn for the worse here, "traders" should not be afraid to lighten up on their longs and go short.  Investors...the Precious Metals Bull Market is far from over...be right and sit tight, and add to you positions if you can.  We may be on the verge of a great buy opportunity at sale prices...then again we may not.  That's why catastrophe ALWAYS has uncertainty tagging along behind in it's shadow.

The downside risk near-term in Silver is to $29 - 30.

The downside risk near-term in Gold is to $1332.

A move in BOTH Silver and Gold to their respective 200 day moving averages can not be ruled out in the intermediate term...particularly if the Fed tries to "telegraph" an end to QE2.  Do not forget the Fed meets THIS Tuesday March 15.  {The Fed will most likely wait until their April meeting to begin playing their QE mind games}

Thursday, March 10, 2011

Dodging Bullets

Well the feared carnage of this morning never quite materialized...yet.  Silver held it's uptrend line, but Gold broke it's, falling below $1423 and finding support at it's 20 day moving average at $1405.  Silver broke below it's 10 day moving average at $34.96, but was able to close just above it, closing at 35.27.

Technically both Silver and Gold look open to further decline as their daily MACDs are pointed lower with Gold's already having printed a bearish crossover.  Patietence and prudence may be warranted.

Oil was resilient in the face of the "global slowdown fears" that China's announced trade deficit sparked.  Reports of gunshots into crowds of Saudi protesters can be thanked for that.  The storage tanks in Cushing, Oklahoma might be full to the brim with oil, but the energy needs of the World no longer revolve solely around those of the USA.  But even Oil prices are a bit suspect here as they have been driven more by the unrest in the Middle-East and North Africa than actual demand/supply fundamentals.  The Oil market seems torn between a drop in demand because the [non-existant] global economic recovery may be faltering, and the potential for a major disruption in supply.  Oil is rising because the Dollar is teetering on the edge of destruction.

Lost in today's news vortex were the following pertinent negative economic stories that should have halted the Dollar's pithy rally in it's tracks:

Jobless Claims in the U.S. Rose 26,000 Last Week to 397,000

U.S. Posts a Record $222.5 Billion Monthly Budget Shortfall

Two Budget Bills Fail in Senate

U.S. trade deficit widens sharply

I'd like to focus briefly on the US trade deficit.  Global equities and the commodity sectory got hammered today because China reported an unexpected $7.3 billion trade deficit, the nation’s biggest in seven years.  The US trade deficit for January was $46 BILLION...a five month high.  And the World is worried about global economic growth because the Chinese posted a trade deficit that is $38.7 BILLION smaller than that of the USA?  China comes up short on trade because their country took a week off to celebrate the Chinese New Year, and global investors run for cover?  I'd hardly call this data a good reason to buy the Dollar.

The US posts a record monthly budget shortfall.  I hardly call this data good reason to buy the Dollar.

The US Congress can not come to agreement on how to fund the government and faces a march 18 government shutdown.  I'd hardly call this news a good reason to buy the Dollar.

Jobless claims rise unexpectedly.  Shocking!  Again, hardly a good reason to buy the Dollar.

And lest we forget, the US Congress must decide soon on how to deal with the nation's debt ceiling that is quickly coming into view...hardly Dollar positive.

The point is, far too much of today's fall in the Precious Metals and Commodities was blamed on a "strong" Dollar.  The Dollar is NOT "strong".  The US Dollar is the burden of debt suffocating America.  It is hardly a pillar of "strength".

The following story pretty much sums up the fallacy of an economic recovery taking root in America.  How can there even be talk of a recovery when fully one thrid of the nation's income is from the government fed bin?

Welfare State: Handouts Make Up One-Third of U.S. Wages
By: John Melloy

Government payouts—including Social Security, Medicare and unemployment insurance—make up more than a third of total wages and salaries of the U.S. population, a record figure that will only increase if action isn’t taken before the majority of Baby Boomers enter retirement.

Even as the economy has recovered, social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.

“The U.S. economy has become alarmingly dependent on government stimulus,” said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients. “Consumption supported by wages and salaries is a much stronger foundation for economic growth than consumption based on social welfare benefits.”

The economist gives the country two stark choices. In order to get welfare back to its pre-recession ratio of 26 percent of pay, “either wages and salaries would have to increase $2.3 trillion, or 35 percent, to $8.8 trillion, or social welfare benefits would have to decline $500 billion, or 23 percent, to $1.7 trillion,” she said.

What a mess.

Prepare for continued volatility in the Precious Metals Friday...Oil prices remain the key driver.


Gold And Silver Break Lower On Chinese Trade Deficit News

Stocks drop on Libya, surprise Chinese deficit
LONDON (AP) -- The battle for control of Libya and weaker than expected Chinese economic data weighed on markets Thursday while a debt rating downgrade of Spain hit the euro, a day ahead of a crucial meeting of EU leaders.

It's clear that rising oil prices are having an impact in China, which has been one of the main pillars behind the global economy over the past few years. Many analysts argue that buoyant Chinese economic growth effectively prevented the economic recession from becoming a depression.

The world's second biggest economy, however, reported a surprise trade deficit in February as surging prices for oil and other commodities pushed up its import bill.

"Confidence in equity markets is being shaken once again as China's surprise posting of a trade deficit combined with the ongoing geopolitical uncertainty -- something that's still focused very much on Libya -- is pushing traders very much into a bearish mindset," said Harley Salt, head of sales trading at IG Markets.

The first paragraph here is a mouthful, and would make even the most bullish trader wary.  But it is the news of a Chinese trade deficit that is most likely pressuring the Precious metals and commodities in general.  Others will claim in their headlines that it is "profit taking":

Gold Declines as Stronger Dollar, Advance to Record Prompt Investor Sales
By Nicholas Larkin and Kim Kyoungwha
Gold declined in London as a stronger dollar prompted some investors to sell the metal after violence in Libya pushed prices to a record this week.

The dollar gained against the euro on prospects jobs data will signal a continued recovery in the world’s largest economy and after Moody’s Investors Service downgraded Spain ahead of a European Union leaders meeting tomorrow. Gold, which typically moves inversely to the U.S. currency, reached a record $1,444.95 an ounce on March 7 as violence in Libya increased demand for alternative assets and boosted oil prices.

“The profit-taking is related to a stronger dollar,” said Bernard Sin, the head of currency and metal trading at MKS Finance SA, a bullion refiner in Geneva. Still, “the situation in the Middle East will have a lot of influence” on demand for the metal as a protection of wealth, he said

We were looking for a pop in the Dollar early this week.  The news of a Chinese trade deficit has put a little wind in the Dollar's tattered sails today.  China has merely fallen victim to Bumbling Ben's Inflation Machine.  This sell-off in Silver in Gold would be the expected knee jerk reaction to this news of a Chinese trade deficit.

This news out of China is THE NEWS of the day.  It darkens the "big picture" for the global economy in many ways and should be a story to be followed closely.  It also makes a strong argument in favor of the Chinese regarding revaluing their currency higher as the US has been demanding.  This Chinese trade deficit should make Little Timmy Geithner very happy.

Keep a close eye on Oil prices this morning.  If the price of Oil remains firm it should support the precious Metals and theCommodity Sector.  If Oil tips over as well, Silver will go down with it, along with every other commodity.
The charts below will give you some targets if you are looking to buy the dips here...it may be prudent to let the dust settle on this news, and bear in mind the EU leaders meeting tomorrow and the Fed meeting next Tuesday March 19.  Nothing goes straight up, and as I've been saying all week...I am wary of Silver prices up here. 

Game On!