Wednesday, December 7, 2011

Will A Euro Short Squeeze Launch Gold And Silver Higher?

The Euro:  The financial news media's "Bad Flavor Of The Month".

Is it just me, or do you get the sense that the financial news media goes out of it's way these days to beat up on the "poor 'ol defenseless" Euro?  I won't bore you dear readers with a recitation of the "Euro headlines" we have all been bombarded with.  Suffice it to say, there have been so many, one wonders if there is any other financial news out there.  It's almost as if they "cover up" the real news in the financial world...are there no financial issues here in the USA worth reporting?

And all of the Euro news is so "negative".  As if  all the country's of Europe and their citizens were a large leper colony.  "Touch the Euro and you too shall fail."  ...or so the news media would have you believe...

The news media has everybody that will listen believing that the Euro is gasping for air and on the verge of collapse.  Is it really?

Europe has its debt problems, absolutely.  But so does the U.K., Japan...even China.  And there is that little matter of the $15 TRILLION of debt that America possesses.

America, the WORLD'S LARGEST DEBTOR NATION, and we hear nary a word about it.  And when we do, miraculously the debt issues in Europe quickly take over the headlines.  Is the American financial press trying to hide something?  It's pretty difficult to hide an elephant in the bathtub, but maybe if nobody talks about it, nobody will notice it's there!

Look at the one year daily chart of the Euro below [click on chart to enlarge]:

Notice on the far left, the Euro closed December 30, 2010 at 1.3382.  Notice on the far right, the Euro at 8PM est this evening was trading at 1.3407.  As of 8PM est, the Euro was UP 0.0025 on the year!  That's right folks, after almost a full year of trading, and COUNTLESS negative headlines declaring the imminent collapse of the Euro, THE EURO IS UP!

Hey, a picture is worth 1000 words right?

Over the past three months, the financial press, particularly the American financial press, have been abnormally harsh in their representation of the Euro AND the Eurozone countries.  Look at the above chart again closely.  Following Labor Day in America, the price of the Euro appears to have been beaten with an Ugly Stick.  Does anybody recall what occurred in the financial press around the Labor Day weekend in America?

That's right folks, the US Congressional Debt Ceiling, Debate...AND...the S&P downgrade of US Treasury Debt.

Now we can't have that in the headlines can we?  All this negative talk about US Debt and a weak US Dollar...THAT IS NOT GOOD FOR CONFIDENCE.  The debt woes in Europe "must be" way worse, Goldman Sachs says so!

And so the latest round of Greek Debt Default began...and the Euro tanked after rising the last half of the summer on the back of a floundering US Dollar as the debt woes of the USA were front and center in the "financial news headlines".

The "fears" of a Greek Debt Default were fanned by the "financial news headlines" for the entire month of September.  The Dollar rose, investors lined up to buy the downgraded debt of the USA, and the imminent collapse of the Euro was at hand.

Suddenly, it seemed from out of nowhere, a resolution to the Greek Debt Crisis is announced, the Euro rises and the Dollar falls, and the American debt woes AND banking insolvencies begin to creep back into the headlines.  That is until Halloween when MF Global blows up....

Back down goes the Euro on new and bigger debt fears that Italy and Spain "may" default...shocking, I know.  And since Halloween, with headlines about MF Global few and far between, the headlines have been stuffed with Eurozone debt defaults and the "now certain" collapse of the Euro.  Is this to keep MF Global out of the headlines?  You tell me...look at the chart of the Euro again.

Getting a bit winded here, ...I think that the debt woes of Europe are covering up the COLOSSAL debt AND banking woes here in the USA.  Not to belittle the debt and banking issues in Europe, but seriously, why are the debt and banking issues in the USA getting so little mention in the "financial news headlines"?

OK...  The moral of our presentation today is "market sentiment" and the contrarian view of a market.

Think of a market, any market, in this case the Euro, as if it were a boat on a lake.  One side of the boat is for the Bulls, and the other side is for the the Bears.  What happens if one side of a boat gets too full?

BINGO!  It tips over...

Right now market sentiment with regards to the Euro is hugely bearish.  There is little room left on the Bears side of the boat.  A few more Bears move onto that side of the boat, and they'll all fall in the water leaving just a few Bulls in the boat all alone.  These Bulls that are left are the Contrarians...

Contrarians are an odd lot in the markets.  They are always looking to take the other side of a trade when a trade gets too one sided.  It's a simple philosophy that the Contrarian follows:

When every body wants to buy a market, they want to sell...when everybody wants to sell a market, they want to buy.

The contrarian is buying the Euro right now in the belief that Bears side of the boat is about to empty in a hurry.  With regards to today's Euro, the contrarian is a Bull in a Bear market.  He senses the bottom.

And in the case of today's Euro...the chart technicals, as they stand right now, support the Contrarian philosophy to a T.

But what is most telling of all about the "inside" of today's Euro market is its "net non-commercial short interest".

This is best described below in an essay I pinched off of the Lemetropole Cafe website yesterday.  [The folks at Planet Gata have got it goin' on.  I urge all of you to become subscribers.]

Rocket Shots Around The Corner,..

Calling all 'Rocketeers of the Happy Silver Ship'

I would suggest anyone still looking to book his seat on this precious journey to utopia, should get down to his local ticket office right now.

For the last 2 months the market lemmings have held back from suitable inflation hedging because of the dark spectre of Euro default hanging over this whole debasement fiasco!

But this roadblock looks to have about run it's course, and given that the only solution to it's demise is even larger sums of manufactured paper notes, the consequences are likely to be one of accelerated debasement in the world's most over valued commodity, paper money!

Note the two charts below and the extra-ordinary correlation between the two:

The first shows the technical set up presently in the Euro currency (red line), where non - commercial speculators are as short as they have been since mid 2010. The second shows the price of the Euro over the same time frame and one can see clearly how one shadows the other.

I have numbered each chart to highlight this blinding correlation,

(1) Both put in lows around June 2010
(2) Both then rose steeply into early August 2010
(3) Both then corrected back down for about a month
(4) Both then rose steeply again into Early November 2010
(5) Both then collapsed back into the beginning of January 2011
(6) Both then rose again strongly peaking out at the end of April 2011

The point about these two charts is to show how horribly wrong the non commercial speculators almost always get it! In mid 2010 their short position was at a multi-year extreme, co-inciding with a 20% rise in the currency over the post-ceding next 9 months, By Mid to late April they’d all scrambled over to the long side of the boat, amassing the largest collective long position for at least 18 months. And no surprise then to find that almost their entire basket of positions has been slaughtered ever since!

With them now all herded back onto the short side of the boat again, it is only reasonable to expect a multi-month rise in the Euro directly round the corner.

This will of course have negative connotations for the US Dollar that is long overdue a further fall, and should prove to be fire fuel for our next upwards vault in our favourite metals.

With Silver building strength in the early 30's these last 2 months, it looks increasingly likely that it’s setting itself up for another grand assault on the 1980's high of $50 some point into 2012.

This should prove to be another very suitable place to load up for the longer term investor, because when/if the mighty $50 dam is finally breached, the run up should be explosive!

In poker terms, I’m ‘all in’,
The Thrusters are burning,
Rich (Live from 'The Bridge of the Silver Rocket Ship')

Taking all of the above into account, and believing that the Euro CANNOT be allowed to collapse, a positive resolution [or the appearance of one ;-) ] will be shortly forthcoming from the European bankers and politicos.  This will be cause for a mad dash to "buy" the Euro, forcing the shorts to cover in what just could be the most massive short squeeze ever in the currency markets.

The future of the US Dollar will dim quickly, but in the end, BOTH the US Dollar and the Euro are destined for the fiat money graveyard.

Got Gold you can hold?

Got Silver you can "squeeze"?

It's not too late to accumulate!


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