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Gold
and Silver have emerged in the last 12 months as the dominant asset group.
They led the entire 2000 decade, still gathering disrespect. They do not
require respect from the Wall Street and London crowd. They serve as
effective protection during the slow motion crumbling process to the global
monetary system. The sovereign bond crisis has circled the peripheral
nations, rendered its wreckage, and is working toward the center where the USTBond and UKGilt reside
(worried). Italy and Spain are squarely in the crosshairs for financial
assaults, but France and the United States lie closer to the core of Western
nation sacred debt territory, soon to become sacred burial grounds. That must
sound drastic and melodramatic, but just wait. Other calls of an insolvent US
banking system, calls of a chronic housing bear market also once sounded
extreme. They came true. So did $1000 gold and Canadian Dollar parity calls
made in 2005. Again they came true. Dismissal of Green Shoots, Jobless
Recovery, Exit Strategy, and No QE sounded bombastic and pedagogical, but
they were also correct calls. In fact, very easy calls. The ruin of the USTreasury Bond debt security is a long drawn out process
like a cancer victim. Weakness is followed by emaciation, then organ damage,
circulatory problems, finally a bedridden state, and lastly the inevitable
death. Analogies to each can be made with USTBonds
nowadays, like the foreign central banks withdrawing from the process evident
in low Indirect Bids, like dependence upon debt monetization.
INTEREST RATE
SWAP DEVICE
A preamble is necessary. The Wall Street market
makers (manipulators) have succeeded in leading the investment community to
believe that the long maturity USTreasury market
has contradicted the Standard & Poors rating
downgrade of USGovt debt. The bond rally with
accompanying fall in the TNX bond yield to near 2.15% as a low led a gaggle
of analysts and news anchors to conclude the S&P downgrade can be
ignored, as the swimming pool water is safe. Keep in mind the powerful effect
of the Interest Rate Swap mechanism. After contemplating some of its traits,
you decide if the bond rally is legitimate. The Interest Rate Swap accomplishes the following:
- initiates a bond rally with heavy
leverage, using essentially free short-term debt to fund long-term USTreasury Notes (10-year) and Bonds (30-year)
- contributes toward giving an ALL CLEAR
sign to a toxic swimming pool, of which the USTreasurys
are considered the safest in the Sovereign Bond Summer Camp
- manages a concentrated USTreasury Carry Trade, whereby Wall Street firms
recapitalize from easy profits in an orchestrated managed USFed bond rally assured by two more years of
accommodation
- enforces the distortion of the capital
cost, near 0%, which actually destroys capital and distorts the price of
all assets (see the effect on housing market)
- leads the investors to believe the
erosion in asset value from price inflation is tame, when the actual CPI
is much higher than 5%, and recently closer to 10% annually
- provides end demand for long-term USTreasurys using hidden funding sources like the USFed debt monetization vat or the USDept Treasury standby device, the Printing Pre$$
- provides the required demand to conceal
$1 trillion in Wall Street firm naked shorting of USTreasurys
(called innocuously Failures to Deliver) which generates desperate
liquidity at a time when investment banking has dried up, essentially
closing the loop on USTBond counterfeit.
The net effect of the intensive Interest Rate Swap
activity is to destroy capital, to drain capital from the USEconomy,
and to crowd out the corporate bond market. The United States is becoming
1990 Japan, but without the trade surplus. With ignorance, the financial
media has been displaying the "Turning Japanese" rock music
song by The Vapors from the 1980s. Little do they realize that the expression
means coming to climax during the sexual experience, with a facial expression
straining to resemble the Asian countenance. How
strange!! Ironically, the effect of
the IRSwap usage has kept interest rates
artificially low. That is the sentinel signal for the Gold Bull Market,
powered by cheap money, in the quest for true safe haven in the strong storm
and deep distortions. The prevailing interest rate is far below the rate
of price inflation. So the Gold market will remain steadily stuck in powerful
bull market mode.
GOLD &
SILVER DOMINANT
The banker index is finally under stress. They have
benefited greatly from the fantasy of phony accounting practices. They have
also benefited from a staged controlled USTreasury
Carry Trade. But their losses continue to mount in great volume. Their exposure
to Europe sovereign debt, the US housing market, and mortgage bond investor
lawsuits combine to make renewed risk. These insolvent zombies are due for a
death experience, if only the markets were fair.
METALS BEATS
PAPER
Mining stocks are not keeping pace with the bullion
metal. The ultimate problem is paper securities and the trust held in them.
Persistent stories about well supplied hedge funds shorting mining stocks,
stories of naked shorting of small mining stocks (see Alpha Group), and other
sponsored spread trades to support bullion metal over the mining stocks have
all contributed to the decline in shares. The distrust in all things paper,
as in financial securities, at a time when trust in sovereign debt is on the
wane, when financial sector insolvency is argued, when bond fraud has gone unprosecuted, has created a hostile climate for
investments. The shortage of credit and capital to anything except USTreasury debt has exacerbated the condition. The HUI index of mining stocks has not
done well versus the basic precious metal, the gold bullion, since the spring
months. The threat of USEconomic recession will
only make the situation worse, certain to lead to more whacks to the equity
markets. Gold bullion has no counter-party risk, no paper dependence. Stay
clear of the fraudulent custodians and their GLD & SLV fraud-strewn funds
for lazy investors who do no research. They will be separated from their
metal claims, handed cash in redemption, and sent away. One point of fraud
proof is that GLD & SLV have a discount to the metal, while legitimate
funds like the Sprott Trust and Central Exchange
Fund include a premium price to the metal. That is because the big cartel
banks, as custodians, are shorting shares of GLD & SLV, sending the metal
inventory to the COMEX to satisfy delivery needs.
SILVER STILL
STANDS OUT
Independent analyst Dan Norcini
does stellar outstanding work. Once gain, he
exposed an excellent factor, this regarding Silver. He points out how the
Continuous Commodity Index (CCI) has averaged one big drop per month for the
past five months. Silver has done well relative to the commodities, as he
highlights. In fact, the Silver price is due to rebound. The process has
begun, with Silver back above $40/oz. Each CCI drop has lasted from 4 to 7
trading days and has been followed by a rather significant rally. In the past
couple weeks, the current decline seems to have run
its course. The next 2 to 4 week rally in all of the commodities is underway,
like a cycle. To be sure, copper, crude and the grains are going to rally. Norcini surmised (correctly) that Silver was not going much
lower, if at all. He posted a reasonable target for Silver at $44 with timing
before Labor Day in early September. Adding to the ammunition are the
promising Open Interest numbers in silver futures contracts. Even the Large
Commercials are covering their shorts in Gold, a good sign generally for
precious metals. See the Norcini weblog where he
argues how the USDollar will be sacrificed for the
greater good (CLICK HERE).
SILVER MORE
THAN INDUSTRIAL METAL
The consolidation phase for Silver has given
compromised critics and lousy analysts an opportunity to denigrate the white
metal, claiming it is exposed for its vulnerability as an industrial metal.
While some significant portion of Silver demand comes from industrial
processes, it is not replaceable. Besides,
its investment demand has been equal in US$ volume as Gold demand, a
remarkable fact pointed out by sector leaders Eric Sprott
and James Turk. They argue that the Silver price will move higher and
reduce the Gold / Silver ratio in the process naturally. The true industrial
metal indicator is copper, not silver. Copper has earned the title of having
a PhD in Economics. Notice how silver has outpaced the copper price in the
last 18 months. Even post-May when the COMEX ambush occurred with successive
margin requirement hikes, the Silver / Copper ratio has risen steadily.
Sorry, the industrial argument is a weak angle that does not bear weight or
scrutiny. The Silver investment demand is due to a big important recognition
that Silver is in the process of resuming and reclaiming its monetary role.
The Chinese lead in that parade, adding silver to their reserves in
management of their $3.2 trillion reserves booty.
The gold market breakout has made history, exceeding
the $1800 level before the usual games were played. The higher COMEX margin
requirement is a tired card at a tilted table. Look for gold profits to move toward silver positions, lifting its
price toward $50 in the coming several weeks. Lastly, one must wonder why
the USTreasury Bond futures contract does not have
to endure margin requirement increases. It is clearly the biggest asset
bubble in existence. However, it is the standard bearer of the fiat paper
charade. Its low yield is proof positive of being broken, just like Greece
with its high yield. The USTreasury Bond complex
would be in big trouble if not for the Interest Rate Swap and the US$
Printing Press both. Prepare to protect your personal wealth during the
grandest transfer of wealth in modern history, from toxic paper to reliable
hard metal with no counter-party risk. Money is in the process of being
invalidated and redefined. The
Paradigm Shift continues at
work.
Jim Willie CB
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