Market update

The stealth gold bull market continues as gold saw yet a new record high of $1594 this week. Silver is near closing the gap as it bumps up against $40.00. I expected it to fall alongside equities during the summer but that has yet to transpire. The news out of Europe continues to put a dark cloud over the markets as Italian yields blew out this week alongside Spain. In response, the Eurocrats are already discussing the option of ballooning the size of the European Financial Stability Fund to a whopping $2.5 trillion Euros or $3.5 trillion dollars. You see, Italy has the potential of causing serious problems to the banking system as it has over $2.2 trillion in outstanding government bonds compared to Greece’s 400 billion dollar debt. With debt equating to 120% of GDP, Italy is dangling close to the debt death spiral. Now that interest rates jumped higher, their funding situation just became a whole lot more precarious.

Gold 1 year chart:



Silver 6 month chart:



Naturally the policy makers will come to the rescue as Italy is without a doubt “too big to fail” and so the ponzi will continue. Just as the republicans put up a little fight over the debt ceiling but ended up capitulating, so will the Germans who publicly oppose the subsidization of their southern buddies. There will come a point where the European Monetary Union will unravel as it is completely unsustainable for 17 separate countries to operate under a common currency with similar central interest rates but no central fiscal funding mechanism. However, the Eurocrats have fought hard for their beloved Union and will not go down without a fight. This monstrosity may last longer than most believe as powerful vested interests have billions at stake in keeping the EU together. Perhaps Greece and Ireland will get the boot at some point soon.

Italy 10 year government bonds:



In response to all this news gold jumps higher and will continue to rise as currency debasement has become in vogue across the developed world. Gold also jumped when that pesky little critter Bernanke uttered words that “in the event that conditions are such that accommodation may be required, the federal reserve is willing to provide additional monetary support and accommodation.” In other words, QE 3. Upon the official pronouncement of the third round of monetary easing the precious metals will be set to rally hard. And they will rally again on the 4th, 5th and 6th rounds of easing until we enter a new paradigm regarding international transactions and what the pricing mechanism will be. Already we are seeing gold rise to its historical position of reserve currency.

Left out of this discussion is the effect that future easing will have on the oil market. Although it’s possible that the Middle East conflicts could calm down it is equally possible that a larger conflict erupts involving bigger players such as Saudi Arabia and Iran. For example, the Kingdom of SA has increased military spending to over 11% of GDP and has been getting armed to the teeth with the KSA ranking in the top 10 countries in the world for military spending. Not that I see any armed conflict between these two regional powers breaking out anytime soon the potential is there. And there is always the potential for a Iran-Israel air war which could break out if Israel engages in a pre-emptive strike on Iranian nuclear sites. Per ex-CIA Robert Baer, "There is almost "near certainty" that Netanyahu is "planning an attack [on Iran] ... and it will probably be in September before the vote on a Palestinian state. And he's also hoping to draw the United States into the conflict."

http://www.zerohedge.com/article/cvn-77-ghw-bush-enters-persian-gulf-cia-veteran-robert-baer-predicts-september-israel-iran-w

In the event of a Iran-Israel war, even if short lived, could easily send the oil market in a tizzy as we could potentially see $150 crude sinking the world economy back into recession. This is a tail-risk that needs to be closely watched. I have had a Iran-Israel conflict on my list of potential tail-risks and this recent report definitely raises the scales.


But back to the oil market more monetary easing will simply translate into higher energy prices which will then push the prices of everything else higher. Lastly, there are serious supply issues that will need to be addressed in the next decade as supply constrains will act as a further tailwind for energy prices.

To this day the majority of the wealthy people that I know own virtually no gold or silver holdings. Faith in paper currency is practically as strong as it was a decade ago but there are cracks appearing in the fiat edifice. Many are hesitant to buy at these lofty levels but the point is not to see the value of gold against the dollar but the value of the dollar and all paper currency against gold. I reiterate my call for $5,000 gold and $100 silver.

Lastly, the law school bubble continues to blow upward with law school applicants acting as momos (momentum chasers). These fools are buying into a extremely overpriced product that has deteriorating fundamentals (jobs and wages) just because of legacy value and confirmation bias. I still hold the view that the bubble will bust when the funding source (the department of Education) cuts the money spigot as younger aged Americans are simply too naive to see the risks inherent this market. Although quality applicants will fall in number to lower tiered schools, there are plenty of people out there that are willing to "give it a shot" and take the plunge. At least when I applied in 2005 there wasn't much information about the TTT world. Enter 2011 and the net is inundated with articles and blogs bemoaning the dismal state of the legal market for TTT grads. Just typing in tier 4 law school in google will show hundreds of articles and message boards warning people not to attend. At this point the information is there.

Thoughts on the commodity massacre

For those that have been following, the commodity complex was absolutely decimated with silver leading the decline with a brutal 13% loss. Crude oil followed with a 10% decline. The US dollar popped against other currencies as the US dollar carry trade blew up in many traders faces. The carry trade is simply when investors (speculators) borrow in a falling asset class to fund other investments that are high yielding or rising. As the dollar continue to decline in value against commodities and other currencies, traders borrowed in dollars to buy the rising assets. Hence, the term carry trade. The risk of course is when the trade is too crowded and can cause terrible losses for those that are caught holding the bag.

As my readers know I'm a silver bug and have invested in silver for the past 3 years. I have been warning about a correction for some time and alas it is here. The last couple of days have been brutal but not necessarily unexpected. On a technical basis the silver metal was insanely overvalued. Throw in some multi-pronged attacks from the powers that be (record margin requirement increases from numerous trading exchanges) and the result is a 30% crash in as little as 4 days. Whereas in the past the government physically confiscated precious metals, today the exchanges change the margin requirements again and again and again until leveraged holders are forced to sell, hence the violent collapse in price. However, due to the artificial methods employed by these institutions to bring down the price of silver, the end result will be a silver shortage. Anytime governments institute price freezes on any commodity, shortage is the result. Thus, as soon as the price falls to a level that I feel comfortable buying I will resume my personal silver purchases. Consider this takedown a gift.

Silver sinks as long awaited price correction comes

The silver price recent parabolic blowoff top has finally cooled down. Of course, recent margin hike requirements added to the selloff. In addition, on a technical basis the asset class was extremely overbought. As a pretty savvy trader I can say with confidence that technicals do matter. While some trader focus too much on fundamental factors or too much on technicals, I put emphasis on BOTH whenever my money is involved. So while the fundamentals support higher silver prices on a longer term basis, the technicals scream sell sell sell. At least to me of course.

Observe the bloodbath in spot silver:



Currently trading at $43.52, hit a trading session low of $42.10, down from its recent high of $49.50.

This longer term chart shows current price and the 200 day moving average:



Notice how the 200 DMA is at $30 while current spot is at $43.50. Just last week with a $49.50 price there was a nearly $30 premium over 200 DMA, or close to 100%. A quick definition of the 200 DMA: This is one of the most popular averages used by traders and investors. It is arrived at by taking the closing price of a stock or commodity, for the past 200 days, and adding these up, then dividing by 200.

No one knows what the hell markets will do in advance but there are some useful indicators that can assist one in making a educated guess. In the end all investors are speculators to some extent. The same can be said about college grads as they take on risk (loans, loss of time) while betting that with their degree they will be able to earn more. Me personally, I've been holding off on any metals purchases until a correction came. That was my guess and so far so good. Of course the recent rally can continue so my theory can go to shit. Still holding off until silver drops to the mid 30's, maybe even lower. Time will tell but I'm waiting until the end of QE2 on June 30 to see how markets will react. So far, big investment heads are saying volatility will rule for Q3 and Q4 and I agree with their assessment.

On a final note, when playing with markets I never bet the house (or my life savings). My core silver and gold holdings were purchased several years ago and are viewed as insurance on my savings and not as a tool for trading. Hopefully this correction continues into the summer providing a good buying opportunity.

Have a good week everyone

$45 silver

Presented without commentary.

$40 silver, $111 oil, dollar tumbles

Woke up this morning and saw the numbers. Holy shit..

Silver breaks into the $40 level




Crude oil crosses the $110 level



And finally the US Dollar Index, which is an index of the value of the US dollar relative to a basket of foreign currencies. The currencies are the Euro, British Pound, Japanese Yen, Swiss Franc, Swedish Krona and the Canadian dollar. The Euro has a 56% weight in the index. Observe the freefall in the USDX.



The all time low on the USDX is 70.69 which occurred in March of 2008. Many analysts are calling for new lows on the USDX in the not too distant future. In addition, many say that the USDX is flawed because it measures the dollar against other fiat currencies, especially the Euro with it's huge weighting. Whereas the euro/dollar may trade at similar levels to each other, they could also be losing value AT THE SAME relative to real products.

Nevertheless, this is a glimpse of what happens if we were to ever have a US dollar crisis. The prices of things that are priced in dollars would skyrocket to the moon. Already crude is priced over $111 which is complete insanity. Obviously there are supply issues with Libya and Middle East concerns but a good 20% of the price premuim is dollar weakness related. Silver and gold continue to act like fucking shitheads and continue moving higher. Right now the panic has to do with the potential US government "shutdown" that is freaking out the markets. I'm confident that a resolution will be passed shortly and the federal debt level will be raised to $16.5 trillion which will buy us a good year and a half at most. When and if this sucker will go down I don't know but the signs are there for everyone to see that something is definitely wrong. On a techncal level our country is broke. It just depends on when people want to accept the fact.

Oh and just a photo...



Peace

Silver shines to $37.30 per ounce

Silver continues to blast higher breaking through technicals. Observe the latest 6 month chart:



I continue to be amazed by silvers performance. A correction is long overdue on a technical basis but as Keynes said it best, "the market can stay irrational longer than you can stay solvent." However, the fundamentals for silver continue to get better as Portugal is the latest European country on the verge of sovereign debt default. As Portugal's government debt continues to sink in value, thereby raising borrowing costs which further increases funding risks, the European Central Bank (ECB) will likely come to the rescue with freshly printed euros. Hence why the US stock market didn't even flinch on the news of a imminent government collapse. In addition, parliament voted down the austerity package which logically introduces the bailout option (i.e. printing of euro option), thereby sending silver to the moon.

When the currency debasement comes to an end, the precious metals market will finish its incredible run. However, if the presses continue to run at these rates, there is no limit to how low paper currency can fall against the monetary metals.

Silver soars to $36.30 per ounce

Posting from a wedding, watching the price go to nosebleed levels. Hoping for a price correction. Wow what a move!!

Silver will hit $100 per ounce: UPDATED

I fully expect the price of silver to break the $100 mark within the next several years. By the time this round of monetary sodomy is over fortunes will have been made and many others ruined. I have been posting about the money supply, gold, silver and commodity prices for quite some time now, even over a year ago. I continue to stand by my bullish precious metals calls. In fact silver hit yet another 31 year high by reaching $34.90 this morning. Gold is currently making yet another all time nominal high by pricing at $1,437.40.

Hopefully in the next few months we will see some dithering from the federal reserve governors as to whether or not quantitative easing should continue or not. Some of these spawn of satan have said that more easing (money printing) will be necessary while others have said that enough printing has taken place. If the fed actually stops printing or announces that it will stop sometime towards the end of spring then we will see a sharp correction in risk assets, stocks, commodities, and even gold and silver. I'm hoping this is the case so we can all go in and buy the fucking dip!

The reality is that the federal government is broke and cannot finance its own operations without the federal reserve purchasing government bonds. Were the fed to stop purchasing gov bonds that would mean the government would have to "spend" within its means which would spell layoffs, a slowdown in the economy and a deflationary spiral to hell which would crater bank balance sheets. As much as people don't want to accept it, however, a deflationary scenario would be a much better outcome than the hyperinflationary disaster that the fed is taking us on. Deflation kills bad debts while inflation destroys everything. We have already seen defation work its magic in housing and thank God it has as housing prices were shooting to the moon. Even today, home prices are still historically high based on price to income ratios. Nonetheless, at the first sight of deflation taking place I predict our policy makers to panic and hit the print button again. We truly are in a bizzaro world with inflation and deflation on both sides of the tight rope we all walk on. Not enough printing and the economy will crash into deflation while too much printing will lead to hyperinflation. Many believe that the federal reserve will be able to manage this narrow path between the two evils. However, I and many others believe that this is a exercise in futility as the true solution is clear: monetary reform. Our debt based exponential money system is inherently unstable, just as the last several years have proven.


To what extent will inflation ravage our nation no one knows but the one thing we can say with some certainty is that gold and silver will prevail in this type of environment.

Some final words. While some have criticized this blog in the past for talking about "off topic things" such as silver, money and finance, I see all these things being interconnected. Besides, this is a monumental event in world history as the world reserve currency is in danger of losing its esteemed status. Indeed this "dollar crisis" will affect all of us in some form or another. Thus, for those who have some cash on hand please do yourself a favor and get some precious metals. I recommend that 10% of savings be stuffed into PM's.



This post has stirred some debate as to whether inflation is a good thing or a bad thing. The videos below are from Dr. Chris Martenson's Crash Course that provide a great historical lesson on US monetary history. The second video talks about debt.

On inflation:



On debt:




Enjoy

Crude oil shoots above $98 while silver explodes to $34.20 and a message to the class of 2010

Houston, we have a problem. It is obvious that the unrest in Libya is scaring the hell out of traders as the April contract just shot to the moon. All eyes on the Saudi Arabian regime as any rumors pertaining to its demise will easily send crude to $120 plus, which will translate to $4 plus in US gas prices.

Observe the carnage in the April contract:



And then there is my good friend silver which has continued to defy gravity and has just broken the $34 mark. I hope and pray for the silver price to crash so we can buy more at a cheaper price. Ladies and gentlemen, observe one of the greatest bull markets in the making despite the fact that the retail (read: dumb money) investor has barely participated in this run up. Just go to any mediation and start asking around if any of the dimwit judges or lawyers have any silver in their portfolios and they will look at you like you're some type of alien. Well too bad for them ahahaha.



Since my last post on Friday discussing the silver price bonanza the shiny metal has gained 5.2 percent! Personally I hate buying any asset class during the rips and prefer buying on the dips.

There are many reasons why silver has been performing in the manner it has in the past few days. The video below explains how JP Morgan Chase has been selling short silver contracts via the New York Federal Reserve bank. Yes, the NY Fed has been using JPM as a proxy to beat down the silver price.



In addition, the historical gold to silver price ratio has been 15. With gold trading at $1,408, based on this metric, silver should be trading at $93! When the public finally wakes up to the fact that their fiat digital currency is being rendered into confetti by the all wise Ben Bernanke, I expect the historical ratio to reappear.

Lastly, this message is for the law class of 2010. I know there are many of you that are unemployed, diligently combing the internet for jobs, sending out resume upon resume in the hope of getting a job. By now given that it is February and nearly 1 year since graduation the frustration and stress must be growing. Do realize that you are not alone and that there are thousands of others facing a similar challenge. This is the despair phase as the resume gap grows alongside with the student loan balance. My advice for you is to keep looking for work, if possible get a part time job to keep you occupied. Go to a park, the mountains, anything you can to get outdoors (for cheap) to get your mind off the constant stress of your financial situation.

Most importantly, however, I would advise you to seek out like minded individuals who are experiencing the same trouble that you are. A few years ago these online communities did not exist while today they are flourishing with more and more visitors. Confess your burden and you will feel some of the weight drop from your heavy heart. And do realize that ironically, the more people that graduate with these insanely high levels of debt, the closer we all are to the end of this disgusting game. Already, people are posting comments with words such as “revolt” or “revolution.” I believe that by the time the class of 2012 will be several months out of graduation that the outcry will grow so loud that some reform will begin to take place. For now what we can do is begin to prepare, organize and develop strategies as to how we can tackle this beast. The culprits are listed as follows: the ABA, the law schools, the bankruptcy courts and CONgress.

While the powers that be want us to believe that they are all powerful and that it is futile to resist them, recent events in the middle east have proven otherwise. The dictators of Tunisia and Egypt have been toppled while Libya’s Gaddafi teeters on the verge of collapse. Protestors in Yemen, Morocco, Algeria and Bahrain have also battled police in their struggle for a better life. While we here in the US enjoy many more freedoms than these people ever had, our freedom is slipping away on a daily basis. The sickening laws pertaining to the enforcement of student loans is a prime example of how we as Americans are losing our liberties to the wealthy and powerful. How a $100,000 student loan can grow to $200,000 in a free society is beyond me. This is neo feudalism pure and simple. Shall we allow our political structure to revert back to the middle ages or will we move forward and not let the tide of tyranny overcome our will? I find it fitting that the CEO of Sallie Mae corp is named Albert Lord because he has in fact served as lord over hundreds of thousands of student loan borrowers.

Here again is the text of the 13th amendment:

Section 1. Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

Expanding on the term “involuntary servitude” comes the term “peonage.”
Peonage refers to a person in "debt servitude," or involuntary servitude tied to the payment of a debt. Compulsion to servitude includes the use of force, the threat of force, or the threat of legal coercion to compel a person to work against his or her will.

Interesting how the lenders in this country use the "threat of legal coercion" to force people to work against his or her will. Basically, if a student loan borrower does not work, they will have legal proceedings brought against them which include penalties, fees, wage garnishment, etc.

In conclusion, while it is too soon to begin to take overt action against this hideously corrupt system, what we can do is prepare intellectually, emotionally, physically and spiritually for the battle that lies ahead. In the end, I believe that this generation will prevail against the crimes that are being committed against it.

Take care for now.