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Gene Arensberg, Resource Investor
Everyone can look at the data and form their own conclusions. But when silver
is in short physical supply, commanding injuriously high premiums and
difficult to locate; when investors are piling into the silver ETF in droves,
a 40% silver price plunge is not only not warranted, it smells.
It is difficult to
imagine a legitimate reason that two U.S. banks could quickly and
systematically amass a net short position on the COMEX which amounts to over
a quarter of the entire action on that bourse. It will not be surprising at
all if we learn that these two U.S. banks are taken to task by regulators for
their actions. It will be even less surprising to learn that they have become
the target of multi-billion dollar class action lawsuits by hungry lawyers
representing silver investors everywhere.
Futures markets are
supposed to answer the actual physical markets, not the other way around. In
other words, futures markets are supposed to be a place where producers or
large holders of a commodity can lay off price risk to speculators and
thereby hedge against unforeseen adverse movements in the price of the
commodity. Futures markets are definitely not supposed to be a place where a
couple of well connected and well funded entities can bully the market with
their own heavy handed trading.
If silver really was
just taken down by a couple of very big U.S. banks to irrationally low levels,
it won't be long before the laws of supply and demand reassert themselves. Got
silver?
Frank Barbera, Gold Stock Technician
Even more to that point, we wonder at what point does an institution such as
the Fed lose its credibility? At what point does an institution become
irrelevant? The answer to that question is when events have taken on a life
of their own, and when their words no longer have any real impact. We have
fortunately not reached this point yet, but for all appearances seem to be
heading in this direction at a rapid pace. The socialization of financial
market bad debts has forced the Fed to act as the lender of last resort,
placing its own balance sheet on the line for the ineptitudes which were sewn
over so many years of the Greenspan Fed. How dare Mr. Greenspan comment on
perils of the current collapse when he was the chief architect of the events
now unfolding each and every week.
Bob Chapman, International Forecaster
Why should gold go down if the dollar goes up? If the dollar goes up
substantially, that means the euro is going down substantially, so gold
should be exploding in the Euro Zone. If anything, a weaker euro should be
more supportive of gold than a weaker dollar as there are just as many euros
out there as there are dollars now, and because the people of Europe are far
more attuned to the uses and purposes of precious metals than are their US
counterparts. We sure hope the people in the Euro Zone loaded up on precious
metals, which are now skyrocketing in their currency as the euro has gone
from 1.60 dollars to 1.50 dollars in rather rapid succession. All fiat
currencies will continue to lose against gold, including the dollar, so it is
time to load up on the bargains you have been so graciously gifted with by
your evil government and the Wall Street fraudsters!!!
Another scheme that financial
companies have employed during the crisis is to regularly reclassify assets
from Level 2 to Level 3 and vice versa. Level 3 assets have no market so values
have to be guessed. Level 2 assets are 'marked by model according to tangible
data.' Ergo if you have a beneficial model you move assets from Level 3 to
Level 2 to generate better marks and earnings.
Which leads us to JP
Morgan - For most of the US financial crisis the media and pundits hailed JP
Morgan as having a 'fortress-like balance sheet' even though it has over $80
trillion of derivatives. JP Morgan CEO Jamie Dimon has been portrayed as the
Financial Wizard of Oz.
So for the past
several months most investors and people assumed that JP Morgan somehow
managed to avoid all the crappy paper and ancillary problems that plague the
industry. One group that thought otherwise averred that the Bear Stearns
bailout was engineered to help JP Morgan obfuscate its problems and borrow
massively from the Fed without public concern.
But the revelation
of a relatively miniscule $1.5B write-down has destroyed the illusion of JP
Morgan's imperviousness to the financial mess. This has led analysts,
investors and wise guys to re-examine JPM.
One disconcerting
JPM fundamental is the amount of its Level 2 assets. An astute money manager
alerted us that, "The market is obsessed with Level 3 assets levels but
forgot to notice that of JPM's total $1.775 trillion in assets, $1.575
trillion are Level 2 or mark to model. The whole loan, MBS and Level 2 are
what presents the real danger when the raters finally get there."
Gary
Dorsch, Global Money Trends
Trading in foreign currencies is akin to judging a reverse beauty contest,
and suddenly, the US-dollar's was looking a little less ugly than its peers.
Ambrose Evans-Prichard, Telegraph UK
My guess is that political protest will mark the next phase of this drama. Almost
half a million people have lost their jobs in Spain alone over the last year.
At some point, the feeling of national impotence in the face of monetary rule
from Frankfurt will erupt into popular fury. The ECB will swallow its pride
and opt for a weak euro policy, or face its own destruction.
What we are about to
see is a race to the bottom by the world's major currencies as each tries to
devalue against others in a beggar-thy-neighbor policy to shore up exports,
or indeed simply because they have to cut rates frantically to stave off the
consequences of debt-deleveraging and the risk of an outright Slump. When
that happens - if it is not already happening - it will become clear that the
both pillars of the global monetary system [the dollar and the euro] are
unstable, infested with the dry rot of excess debt.
Gold bugs, you ain't
seen nothing yet. Gold at $800 looks like a bargain in the new world currency
disorder.
Bill Fleckenstein, Fleckenstein Capital
In any case, if we saw (as it appeared) heavy selling or short-selling in the
futures market while demand for gold in the physical world was rising, that
historically would be a very bullish development.
What does seem quite
clear is that some portion of gold's weakness has been a function of the
dollar's strength. The dollar's violent rally owes to folks' beliefs that the
economy is improving in the U.S., that the Federal Reserve intends to raise
interest rates and that the rest of the world economy is slowing down.
The rest of the
world may in fact be slowing down. But our economy is not about to get
better, and the Fed is not about to tighten rates. Just the thought of the
Fed increasing rates is laughable.
Eric Janszen, iTulip
The current recession is more serious than all previous recessions since the
early 1980s. This time inflation, unemployment, and a credit crunch are
cutting into demand. Demand, in the economic sense, is the combined desire of
consumers to spend and the availability of the cash they need to act on that
desire. Recessions with declining demand tend to be self-reinforcing as
falling demand leads to falling consumption leading businesses to reduce
labor costs by laying off employees, leading to falling incomes and further
reductions in demand.
Another unusual
aspect of this recession is that traditional Keynesian techniques to
stimulate demand by expanding credit through interest rates cuts is hobbled
by a moribund housing market; housing has for decades been the primary
mechanism for transmitting interest cuts to consumers by reducing a
household's primary interest expense, their mortgage. The freed up money acts
much like tax cut. Now, however, interest rates are rising, especially for
those homeowners who took Greenspan's advice in 2005 and took out an
adjustable rate mortgage when fixed rate mortgages were at 40 year lows, and
tightening lending standards are cutting off home mortgage refinancing for
millions.
Finally, a weak
dollar since 2001 means "oil prices drive up the cost of everything that
requires oil to grow, be dug up, blown, packed, scrubbed, crushed, shaken,
warmed, cooled, pickled, packaged, processed, or moved - that is, everything
on God's green earth including your own hair and the hot water you used to
wash it this morning." The only way to reduce that impact short term is
to use less oil. A recession will help, as long as the dollar doesn't fall
faster than oil demand.
Jack Lifton, Resource Investor
As the 2008 political season nears its quadrennial crescendo and rock stars
and war heroes are vying to be selected for the most militarily powerful job
in the world it would seem that no one, certainly no politician, is willing
to admit that America's world economic-leadership is eroding at an almost
perceptible daily rate. Candidates, and office holders, remind us that each
of the U.S. Navy's 12 carrier battle-groups is, by itself, more powerful than
any other single nation's entire navy! Yet they fail to mention that we
cannot build armoured ships or vehicles, small arms, artillery, armour
piercing ammunition, missile guidance, night vision equipment, computers,
displays, or, believe it or not, nuclear propulsion systems, or aircraft of
any kind, civilian or military, without minor metals, such as the rare
earths. Most of which we are now, 100%, dependent on nations unfriendly to America, which, notwithstanding their being unfriendly, already practice resource
nationalism. Some of them, such as China, have already openly begun to
restrict the export -- or utilization for items for export -- of key
industrial minor metals, so as to reinforce their own self sufficiency in
these materials.
Bob Moriarty, 321Gold
Homestake declined about 21% from the crash in late October 1929 through the
end of that year, but through the entire decade of the 1930s Homestake was
the highest gaining stock on the New York Stock Exchange. So, it's entirely
possible the market could crash and gold stocks go up. At some point in time,
people are going to recognize the precious metals stocks, not all metal
stocks, are the safest place to be.
Doug Noland, Prudent Bear
It is not the nature of dislocated markets to let fundamentals get in the way
of price movement. Markets, after all, live on fear and greed. Sinking energy
prices and a short squeeze ignited U.S. stocks this week. And surging stock
prices always entice the optimistic viewpoint, with many viewing runs in
stocks and the dollar as confirmation that the worst of the financial and
economic crisis is behind us. The bursting of the so-called
Energy/Commodities Bubble is also viewed in positive light.
Yet if the key
dynamic is instead a Bursting Leveraged Speculating Community Bubble, entirely
different dynamics are now in play. Enormous short positions have built up,
the vast majority as part of "market neutral," "quant"
and myriad risk hedging strategies. If today's dislocation develops into a
significant unwind of these positions, the market immediately then becomes
vulnerable to a disorderly "melt-up" followed almost inevitably by
a sharp reversal and disorderly decline. The unwind of bearish speculations
and hedges would be a most problematic market development, unleashing a final
bout of speculative excess and disorder that would set the stage for a major
market crisis.
It is now clear that many within the
leveraged speculating community have suffered huge losses over the past few
weeks. For a "community" that was already suffering a difficult
year, blowups in the popular energy, commodities and short dollar trades were
a decisive backbreaker. Huge rallies in heavily shorted stocks and sectors
have added further pain. One can now expect major redemptions at quarter and
year-ends, a dynamic that likely ensures recent near-chaotic market
conditions become the norm for awhile.
Jim Puplava, Financial Sense
The US Mint has suspended the production of US Eagles. I was told by one
dealer this morning, checking with him, they're telling people delivery dates
for silver Eagles won't be till January, February of next year. One dealer I
was talking to said that they can't even get the plates - so what they were
doing is they were ordering thousand ounce bars and they were melting the
bars down to make one ounce coins because most people are buying either
silver rounds - and I was told delivery dates right now are two months out. So
this is August, probably late October. That's how scarce it is. So, the other
thing is get your physical metals because there is a gross discrepancy and
divergence between trying to drive down the paper market price of silver. One
dealer told me in July his sales were up four fold last year; and this month
alone, his sales are up eight fold. One dealer was telling me today that he
had never seen anything like this in his lifetime. On this Friday I just
bought a ton of silver and I've been told it's going to take two months to
take delivery on that ton. And if the price goes lower, I'll buy another ton.
I've got a couple of dealers who store my bullion for me until it's shipped
overseas.
James Quinn, Wharton School, University of Pennsylvania
We have outsourced our savings to the emerging economies, along with our
manufacturing jobs. The Chinese are saving the money we've paid them for flat
screen TVs and the Middle Eastern countries are saving the money we've paid
them for oil. You need savings in order to increase investment. The emerging
markets are making the vast majority of the investments in the world. While
the U.S. endlessly debates drilling and construction of nuclear plants (none
built in U.S. since 1987) and oil refineries (none built in U.S. since 1977),
China brought four oil refineries online in 2008 and plans to build 30
nuclear reactors in the next twelve years. The Asian Century has begun, but
the U.S. has tried to keep up by using debt. It will not work. If anything,
this has accelerated the shift of power to Asia.
Nouriel Roubini, RGE Monitor
Barron's: Unfortunately for the rest of us, you have a pretty good track
record. How much more misery lies ahead?
Roubini: We are in
the second inning of a severe, protracted recession, which started in the
first quarter of this year and is going to last at least 18 months, through
the middle of next year. A systemic banking crisis will go on for awhile,
with hundreds of banks going belly up. The taxpayer's bill is going to be
huge. I estimate this financial crisis will lead to credit losses of at least
$1 trillion and most likely closer to $2 trillion. When I made this analysis
in February everybody thought I was a lunatic. But a few weeks later the
International Monetary Fund came out with an estimate of $945 billion,
Goldman Sachs (GS) estimated $1.1 trillion and UBS (UBS) $1 trillion. Hedge-fund
manager John Paulson recently estimated the losses would be $1.3 trillion,
and late last month Bridgewater Associates came up with an estimate of $1.6
trillion. So, at this point $1 trillion isn't a ceiling, it's a floor. And
the banks, as I've said, have written down only about $300 billion of
subprime debt. I think $2 trillion is too high, but the number will
definitely be huge.
Franklin Sanders, Money Changer
Either this is the greatest silver and gold buying opportunity of all time,
or the end of a bull market.
But it is NOT the
end of a bull market. Time alone argues that. A bull market runs 10 - 20
years, and this one has run only 7, since 2001. Those who think silver &
gold have fallen into the "bursting of the commodity bubble"
completely misunderstand what drives them in the first place. Silver &
gold are not commodities; they are money. When investors pile into silver
& gold, it's not any commodity bubble forcing them there, but monetary
demand. They aren't buying metals because they think all the Indian ladies
are going to be wearing two nose rings instead of one this season, or that
the American bourgeoisie will suddenly begin stockpiling sterling silver
forks again.
They are buying
metals because -- listen to this, get it straight once & forever -- they
distrust fiat central bank currencies (or if you prefer, national
currencies). The dollar is trash, the yen is trash, the euro is trash; all
are equally insolvent, equally unbacked by anything expect a politician's or
central banker's promise, which is not nearly as good as that of any madame
at any bordello anywhere.
The dollar is
rising? So, why? Did it become better, acquire more gold backing, solve its
chronic balance of payments deficit last night? Come on. Did the euro get
worse overnight? The yen? How much worse could it get? You are seeing
competitive devaluations, all very much worked out collegially in advance by
central bankers. Fundamentally meaningless.
What is NOT
meaningless is that the Great Alternative Currencies, silver & gold, have
long been advancing against ALL national currencies. All markets swing like
pendulums, too far one way, then too far the other. Silver & gold prices
became overbought -- a lot of people short dollars were long silver &
gold. The dollar rallied, oil & commodities fell, sucking down silver
& gold money. Look at the numbers. Even with gold down to $787.50 today,
that's only a 21.5% correction, while always more volatile silver is down
37.4%. Friends, these are normal, not outlandish, corrections. Sober up.
Julian
D. W. Phillips, Gold Forecaster
The huge gap between the value of gold and the value of money must narrow. Whether
it is through the rise in the value of gold and silver or through the fall of
the value of money dictates the future of the financial system. Either way,
gold and silver will prove to be the safe-haven it has been since money was
part of man's world. And the second half of this year is likely to be as
dramatic as the first half but with a golden or silver sheen to it.
Steve
Saville, Speculative Investor
Many people will be asking the question: why is the US$ rallying when its fundamentals are so terrible? From our perspective, however, a more reasonable
question is: why has it taken so long for the US$ to rally against the euro
given that the US$ is extremely under-valued relative to the euro and the
euro's fundamentals are just as bad?
The answer, we
think, is that the currency market has believed that the US Federal Reserve
would be as 'easy' as it needed to be to help the banking system through its
crisis, while the ECB would continue to focus on minimizing currency
depreciation. We think the market was/is right to believe that the Fed will
do whatever it takes to maintain the solvency of the major banks, but traders
now appear to be coming around to the view that the ECB will also be
loosening the monetary reins. Take away the interest-rate 'prop' and the euro
suddenly becomes free to fall under the weight of its own over-valuation.
Mike Shedlock, Mish's Global Economic Trend Analysis
It's NEVER "practical" for the Fed, the SEC, Banks, CEOs in
general, the FDIC, Congress, the Treasury Department, or the President to
tell the truth. This is what it all boils down to: Somehow it's never
"practical" to stop a drunken credit-financed orgy, yet when the
party ends, it's never "practical" to discuss the consequences. In
this case, the credit orgy lasted so long, and there were so many players,
that the most important truth right now that needs open, honest discussion is
that the entire US Banking System Is Insolvent.
Government
stupidity is the most liquid of all assets, spreading
everywhere at the slightest provocation. Look for more of it and you won't be
disappointed.
James Turk, Freemarket Gold and Money Report
The time-bomb is ticking. The federal government is liquid because as its
consolidated accounts state, it has "the power to print additional
currency." And print it will for one simple reason. The federal
government is insolvent. Its debt obligations far exceed its financial
capacity to repay those debts without debasing the dollar. Eventually it will
take one ounce of gold or so to buy the Dow Jones Industrial Average. At that
time I will recommend selling gold and buying the DJIA to ride the next
cycle. But the DJIA still has to lose about 90% of its price in terms of gold
for that to happen.
Christopher Whalen, Institutional Risk Analyst
We're not sure who's going to win the presidency in November, but we are very
sure that the safety and soundness of the nation's banking system is going to
be an issue in this election - perhaps as prominent an issue as energy
prices. Indeed, we think that the president-elect will be forced to meet with
President George Bush and both men will ask the Congress to move on providing
funding and new legal authority to backstop the FDIC. In the near-term Uncle
Sam is going to be forced to get even more involved to head off a
catastrophic contraction in the availability of credit to the private
economy.
Jim Willie, Hat Trick Letter
The US banks are fast approaching the early warning season in early to middle
September. They are required (Wall Street firms excluded) to come forward and
provide guidance on their earnings, their balance sheet damage (called
impairment, since sounds better), and their profits (nonexistent, as in
extinct). Wall Street firms have almost no stock or bond issuance, no private
equity packaging, so business is largely dominated by management of their
demise, along with management of their propaganda messages that seem shrill
lately. The US banks will in my estimation announce bigger Q3 losses than Q2.
Their BS-stories continue since they are actively seeking cash to shore up
balance sheets. Their mortgage related losses will be ongoing, but now those
losses will be joined by prime mortgage losses, commercial loan losses, car
loan losses, credit card losses, and more. The USGovt can claim the economy
is in good shape, that exports are booming, but a grand disconnect has
occurred. Something like 460 thousand jobs have been lost this year, and most
job gains are on paper, from the Birth Death Model nonsense. More paper
deception, this of the labor market. Consumers might spend less if they were
keenly aware of US-based unemployment running over 14%. The steep decline in
USGovt tax receipts testifies to a recession. Most statistics testify to
recession, like the Leading Economic Indicators. Reverse gear for the
USEconomy is bad news for the USDollar. And all the horrendous disasters
coming from Fannie Mae and Freddie Mac acid pits cannot be good.
John Rubino
DollarCollapse.com
John Rubino is co-author, with
GoldMoneys James Turk, of The Coming Collapse of the Dollar and How to Profit
From It (Doubleday, December 2004), and author of How to Profit from the
Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow,
1998). After earning a Finance MBA from New York University, he spent the
1980s on Wall Street, as a Eurodollar trader, equity analyst and junk bond
analyst. During the 1990s he was a featured columnist with TheStreet.com and
a frequent contributor to Individual Investor, Online Investor, and Consumers
Digest, among many other publications. He now writes for Fidelity Magazine,
CFA, and Proto.
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