Top-Caller Fallacies

Today, I’m going to start with my featured topic, and then move on to the “horrible headlines.”  Long time readers know the passion I feel for this topic, which angers me more than ANYTHING in the Precious Metals world.  And that topic is…

“TOP CALLERS,” i.e. the majority of subscription-based newsletter writers. 

At the risk of generalizing, there are a number of fantastic writers that provide what you pay for – the TRUTH – with no ulterior motives and ‘secondary products’ such as “stock picking services” and “trading strategies.”  However, anyone offering such services should be ignored, unless you wish to waste money subscribing, and lose far more by taking their advice.  Financial markets have been completely commandeered by the PPT, and thus the only thing more treacherous than technical analysis is stock picking, particularly amongst the small mining companies many newsletters claim to have mastered. 

Trust me, I worked with such companies, and their stocks, for nearly a decade, a series of failures no matter how hard they tried.  There are MANY reasons why mining stocks have “sucked” for five years, as so eloquently put in the below article, which will only multiply as the END GAME approaches for the global financial system. 

Memo to David Einhorn re gold miner SUCKITUDE

I believe mining stocks will have a nice run when the Gold Cartel is finally broken, but expect that run to be brief, muted, and potentially coincident with MAJOR increases in capital gains taxes.  The major problem, of course, is that when the Cartel “breaks,” hyperinflation will have already started, causing petrified governments to issue draconian decrees such as mine nationalizations and windfall taxes.  In other words, DO NOT read newsletter writers offering services that help you “beat the market,” particularly in the mining sector where ANYTHING can, and will, happen, at ANY TIME. 

Nationalism Replaces Crisis as Biggest Threat to Metal Supply

The world is about to get EXPONENTIALLY more difficult and financial markets EXPONENTIALLY more volatile.  This is why I strive to convince you to thinkdefensively about financial choices, NOT offensively.  PHYSICAL gold and silver will rise more than 99% of all the stock, bond, and real estate investments throughout HISTORY (with essentially none of the risks), and will do so while 95%+ of the world’s population grows poorer.  I cannot emphasize enough that relative returns are what makes one wealthy, not absolute returns, and more importantly, that CAPITAL PRESERVATION must be your top priority in the current, calamitous economic environment.

Precious Metals-focused newsletter writers can steal your money in a number of ways.  The first is to divert funds that could otherwise have PROTECTED your wealth with PHYSICAL gold and silver, into speculative, volatile mining stocks.  The chart below demonstrates how poorly small mining stocks have performed versus the price of gold, and below that how poorly the world’s largest mining stockshave fared.

The second way newsletter writers separate you from your money, perhaps moredangerous than stock-picking, is via MARKET TIMING, particularly when the writer offers “proprietary trading strategies.”  I cannot scream louder about the worthlessness of such products, as PAPER gold and silver markets are so infested by manipulation that attempting ANY technical trading strategies will likely prove fatal. Pay special attention to the message in this new “Silver Bears” video, released yesterday afternoon.  They are talking about titanic battles for the little remaining PHYSICAL metal, to be fought via escalating manipulation of the PAPER markets, as we are clearly seeing today. 

THE SILVER BEARS ARE BACK – PART 8

Heck, given the HEINOUS CRIMINAL THEFT pulled off by MF Global of its clients’ funds, you may not get a chance to place a single trade before the Cartel steals your money.  Just ask some of the industry’s supposedly smartest, shrewdest traders…

Gerald Celente LOSES GOLD FUTURES ACCOUNT to MF Global theft

Bill Fleckenstein has money STUCK in MF Global

Not only do newsletter writers PRETEND to know things you don’t, such as the secrets of their “proprietary technical research,” but SCARE you into making short-term trades. They don’t always seek to scare you, but since their livelihoods are based on subscriptions, they often convince themselves that they’ve re-invented the wheel, which I assure you they haven’t.  In other words, short-term trading in rigged markets, particularly Precious Metals, has about the same success probability as betting on professional wrestling.  Throw in taxes, transaction costs, “other” fees, and the risk that your broker goes bankrupt, and in most cases, you have GUARANTEED LOSSES before you start.

A perfect example of such “scare tactics” relates to the trading periods before and after CRIMEX (sorry, COMEX) gold and silver options expirations.  This practice reached epic proportions this week, representing the primary inspiration for this RANT.  Although COMEX option expirations occur nearly every month, this particular expiration, on this coming Tuesday the 22^nd, has engendered more pessimism and “top-calling” than I can remember.  You know, the same old vapid comments from the supposed “good guys,” telling you they expect one more giant smash, before :the big price explosion.”

Readers, I have heard about the last smash for a decade, but it hasn’t yet come.  It’s one thing to hear it from Cartel plants and mainstream shills, but when it comes from “our camp” I am inflamed with passionate, virulent anger. 

The unending Cartel attacks, such as today’s, as usual, EXACTLY 3:00 AM EST and just before the COMEX open, is what have turned the PM sector into the chaotic, uncoordinated mess it is today.  But everyone in the sector does not fit this description, and in fact, the finest people I have ever met are products of my decade-long battle to expose the TRUTH of the gold and silver markets by fighting the nefarious forces of misinformation.  Man’s character is built upon his ability to not just react to his surroundings, but calmly, and effectively, cope with them.  My goal is to become a better man, and to help others do the same, and the only way to do so is to think critically, and not allow the lies and propaganda to steer you from what you hold to be TRUE.

The degree of a man’s independence determines his worth.

-          Ayn Rand – The Fountainhead

Irrespective of the above, there clearly are reasons for such near-term pessimism.  Numerous factors contribute to the collective psyche of a group, particularly one as jaded as Precious Metal investors.  Despite eleven straight years of gains, we have experienced fear, anger, and frustration at the Cartel’s hands, and truth be told most PM investors have not made ANY money, the result of trading in and out of PAPER gold and silver investments (such as bullion ETFs and mining stocks), and thus exposing themselves to the Cartel’s primary weapons despite the inexorable climb of PHYSICAL PM prices.

From my past experience, the things PM investors fear the most (in terms of what the Cartel typically gets the most play out of) are improving U.S. economic numbers(such as the comical, and slight, reductions in jobless claims numbers this month) and collapsing stock markets (a la the 2008 meltdown).  Right now, we are seeing BOTH of these factors play out, although once again, I cannot emphasize enough the statistical insignificance “improvement” in U.S. economic data, nor itsincongruence with reality.  In Europe, however, a banking-led collapse is a black swan event with a very high probability, and the Gold Cartel loves nothing more than attacking PAPER gold and silver when markets are declining, as we all well know. 

Contrary to popular opinion, including within the PM camp, I believe such an event would NOT yield a PM crash this time around, as in 2011, unlike 2008, the “traditional safe havens” (i.e. sovereign bonds) are the problem, NOT the solution.  Even if I’m correct, it may not help holders of PAPER gold and silver investments, as mining stocks may or may not rise with PHYSICAL metal, and ETFs such as GLD and SLV may experience WIDENING DISCOUNTS to PHYSICAL gold and silver prices due to heightened Cartel naked short-selling.  It is your choice of how much risk you want to take, but in this horrific economic and financial markets environment, I view ownership of risky securities to be near suicidal.

Back to the point of this section of my RANT – next week’s COMEX options expiration.  To start, let’s talk about the notorious “commercial” positions in gold and silver, i.e. the Cartel, who has been short PAPER gold and silver for the ENTIRE eleven-year bull market.  Yes, gold and silver are the ONLY commodities to have material short positions on the COMEX, and this despite massive producer DEHEDGING over the past five years.  There is no doubt (except at the puppet CFTC) the “commercial” position represents the Cartel, and in silver’s case JP Morgan specifically.

Furthermore, I have been watching, and charting, the COMEX commercial short position for the past decade, each and every week.  In fact, you can see the latest report each Friday at 3:30 PM EST, using this website.

http://www.commitmentoftraders.com/reports.htm

In the early days of the PM bull market, before the Cartel had so many people watching it, changes in the commercial short positions in gold and silver were EXTREMELY predictive.  In other words, if they heavily increased their short position for several weeks, it was GUARANTEED a major smash was coming.  Conversely, when they aggressively covered their shorts, you could take it to the bank that gold would shortly rise.

That all changed circa 2007, about the same time Goldman Sachs mysteriously closed out its MASSIVE gold short position in the Tokyo gold market, signaling its intention to shift from a an OVERT manipulator to a COVERT one.  All of a sudden, the predictive value of movements in the COMEX commercial positions was reduced to nil, in my view.  We still see the familiar pattern of commercial short position growth when gold and silver rise, but such changes no longer correlate to imminent price collapses.  Conversely, we still see short positions reduced when gold is falling, but again, such reductions appear to have little direct relationship to the eventual gold rises, which used to be predictable nearly to the week.  In fact, when viewing the two charts below, the only significantly discernible pattern is the REDUCTION in the overall commercial short position, particularly in SILVER, which is actually threatening to push into NET LONG territory despite a silver price at the high-end of its 100+ year trading range!

As for this month in particular, I have seen and heard PM prognosticators and newsletter writers speak of the “alarming” state of the COTs (or “Commitment of Traders,” as the report is called).   Look at the chart yourselves – do you see anything “alarming” about the trends, particularly in silver where the commercial net short position is nearly at a TEN-YEAR LOW?

Next, I did some research on gold and silver price performance the week BEFORE and AFTER each of this year’s COMEX option expiration dates, listed below.  In the past, it was 100% true that the Cartel attacked PAPER gold and silver before each and every options expiration period, with the goal of both stealing call option premiums, scaring long speculators out of the market, and in general, reducing positive sentiment (and momentum) in the Precious Metals sector.  In fact, such attacks are a key point of the lawsuits against JP Morgan claiming silver price suppression, as highlighted by the heroic whistleblower Andrew McGuire.  Believe me; I’ve watched the PM price action before every single COMEX options expirationfor the past decade, so I’m speaking from (painful) experience.

As is the case with commercial short positions, I have sensed a MAJOR change in PAPER PM price action prior to options expiration periods this year, which I was certain would bear out under the scrutiny of empirical evidence (it did).  I hypothesized the data would show the opposite of the “consensus belief” that gold and silver are slammed before options expiration, for two logical (yet un-provable) reasons.  For one, I no longer believe the profit motive is a major component of such smashes, as JP Morgan is now so entrenched in official government operations (a la Fannie Mae), it has become hard to discern it from not-for-profit market entities such as the PPT.  Put simply, JP Morgan and the government NEED each other more than ever for survival, and thus are focused more on influencing market PERCEPTION than making a few illicit bucks selling gold and silver calls to suckers.  Secondly, as I have spoken about exhaustively for some time now, it was only a matter of time before MASSIVE COMEX trading losses would cause traders to either go bankrupt or flee the COMEX altogether, a trend which will likely be fueled further by the MF Global account freeze fiasco.  Open interest has indeed fallen rapidly for both gold and silver in the past year, but that topic is for another RANT.

Back to the data, below I created tables depicting COMEX gold and silver price trends in the weeks directly BEFORE, and AFTER, each of this year’s six gold and silver options expiration periods.  Voila, the data doesn’t lie!

For gold, the AVERAGE price change in the week before options expiration is -1%, and in the week afterwards, 0%!  In fact, the ONLY major price move all year in the weeks surrounding gold options expiration was in mid-September.  However, that 9% decline, in my view, had NOTHING to do with options expiration.  Instead, it was CLEARLY a product of the coordinated DEATH STAR attacks starting the day after Labor Day, as gold had just hit an ALL-TIME HIGH amidst market CHAOS in late August, generating a swift, violent Cartel response.

For silver, the AVERAGE price change in the week before options expiration is +1%, and the week after is 0%, essentially the same result as gold.  As expected, silver is more volatile than gold in general, but the largest silver smash was AFTER options expiration in late April.  That smash was, in fact, the SUNDAY NIGHT PAPER SILVER MASSACRE, which clearly had NOTHING to do with options expiration. 

I’m not saying gold and silver will not fall this week, particularly given the aforementioned European market stresses that have put the Cartel and GLOBAL PPT into full-time emergency mode.  However, there is unequivocally NOTHING in this month’s COT data that appears “alarming” in the slightest, and NOTHING in the 2011 price data suggesting a smash is imminent.  In other words, just as the Cartel ALGORITHM linking PAPER gold prices to the inverse of the dollar index has been permanently broken, so too appears to be the historical relationship between PAPER gold and silver prices and COMEX options expiration periods.

And thus, the credibility of many newsletter writers…

Now onto my favorite topic, today’s “horrible headlines.”  It is truly surreal to watch the PPT in action while the 20+ horrible stories below are pounding the newswires.  I walked into the gym this morning to see the Dow down just 70 points with Europe imploding, and of course gold down $25.  As always, that -70 print was the low point of the day, as the daily, PPT-inspired Dow futures rise in the NYSE premarket commenced while the world around it imploded.

Let’s start with China, as lately I’ve been writing in chronological order from East to West. 

Once again, I cannot emphasize enough how enmeshed China is to the GLOBAL financial crisis, particularly as the PBOC has printed more money than nearly any Central Bank on the planet, perhaps more than even the Fed and Bank of Japan.  Given that ALL these banks print as much money COVERTLY as they do OVERTLY, we will never know the exact numbers, but suffice to say, pegging the Yuan, or the Yen, to the dying dollar requires an ENORMOUS investment in printing ink.

China’s real estate bubble is bordering the legendary status of those in the U.S. and Europe, set to pop dramatically as the GLOBAL financial contagion spreads with increased ferocity.  This issue CANNOT be underestimated, regarding its effect on global commerce AND impact on Chinese monetary and foreign policy.

Zero Hedge – China’s Real Estate COLLAPSE

In Europe, things are worsening by the MINUTE, as opposed to the HOUR in recent months.  In light of the serial collapses of PIFIGS sovereign bonds (PIIGS plus France), my forecast of a banking system failure, and ultimately collapse of the Euro currency, in the not-too-distant future has strengthened, possibly withinweeks, or even DAYS, if the ECB and its COVERT cohorts (such as the Fed) lose control.

Willem Buiter – A Spanish Or Italian Default Could Happen In A Few Short Days

To start the European day, we saw YET ANOTHER failed Spanish 10-year auction, with rates closing near 7% after just going through 6% DAYS ago!  Bund spreads across Europe rose to new highs, as they do nearly every day…

ANOTHER AWFUL SPANISH AUCTION, RECORD SPREADS

…while spreads for the fabled EFSF fund (as in, it will NEVER receive funding) continue to rise, suggesting future EFSF issues may be considered JUNK BONDS before the first bailout dollar is paid out!

EFSF spread breaks 190 bps, a RECORD

Meanwhile, MASSIVE PROTESTS against the new Goldman Sachs/Bilderberg/Trilateral Commission-led ECB government, putting further upward pressure on Italian bond yields…

VIDEO – Thousands protest Monti’s BANKER GOVERNMENT

…while Greece burns to chants of “EU, IMF out!” 

Anyone still believe in a Greek bailout?

Greek police fire TEAR GAS, Protesters chant “EU, IMF OUT”

In response, YET AGAIN the ECB blatantly buys every bond in site to “calm the market,” just DAYS after saying it would not be the buyer of last resort…

ECB goes HOG WILD, lifts EVERY OFFER in FAILED ATTEMPT to calm market

…a play that worked for a whopping HOUR or so, before Italian bonds were jarred by this announcement…

And BACK DOWN…Fitch says Italy may be cut to LOW INVESTMENT GRADE

It certainly doesn’t help that Italy is too scared to release its GDP data, in front of roughly €440 BILLION ($600 BILLION) of planned bond sales…

Italy opts to NOT RELEASE GDP data, sets to raise €440 billion of debt in 2012

…or that Italy’s largest bank (actually its LARGEST THREE banks), are headed for bankruptcy…

Whatever you do, DON’T LOOK at Unicredit long bond

…or that the HEAD OF THE EU is stating that the debt of GERMANY, considered BY FAR the strongest player in Europe, is suspect as well!

Has Juncker gone INSANE? Eurogroup head says GERMAN DEBT levels cause for CONCERN

Alright, enough from the soon to be Divided States of Europe, and onto the United States of Corruption, starting with the massive OWS rally to protest Mayor Bloomberg’s attempt to kick protestors out of Zuccotti Park…

ZeroHedge – LIVE FEED, OCCUPY WALL STREET

That’s just the warm-up, however, of describing the cauldron of garbage stewing on this side of the pond. 

Notice how the stories in Europe focus on economic calamity, while in the U.S. corruption and obfuscation is the prevailing theme, such as this beauty below.  Please tell me why a politician such as Newt Gingrich would be paid more than $1.5 million by Freddie Mac, a recently quasi- and now completely Federal agency, as aconsultant.  Am I missing something here, or is he a real estate expert?

Gingrich received FREDDIE MAC compensation

Or this one about the Fed not only passing China as the LARGEST HOLDER OF U.S. TREASURIES in the world, but blowing by it like an Indy Car past a go-Kart.  Yes, the Fed can OVERTLY buy nearly $2 TRILLION of Treasuries (and who knows how much more COVERTLY), yet it is considered anathema if one suggests the tiny GOLD MARKET is manipulated.

Fed now LARGEST OWNER of U.S. Government debt, SURPASSING CHINA

And speaking of gold, as I watch it down $25+ while the Dow is magically UP on all the great news above, isn’t it amazing how the price could drop when it just hit an ALL-TIME HIGH in India, BY FAR the largest gold consumer in the world?  Yes, secular Americans, gold trades in other currencies as well, of which many are experiencing new lows due to the currency volatility caused by the global economic meltdown.

Gold soars to new ALL-TIME HIGH in INDIA as wedding season gets underway

And how about that.  Gold is nearly $200 off its August high, despite SURGING global demand, including a 135% increase in buying from hyperinflation-fearing Europeans…

EU GOLD INVESTMENT DEMAND SURGES 135% – WORLD GOLD DEMAND UP 6%

Back to Federal Reserve manipulation, as well as the “imminent gold smash” everyone is so fearful of.  If there’s ANY legitimate reason to fear such Cartel actions, it’s the upcoming announcement of OVERT QE3, which I believe MUST OCCUR in short order.  TPTB have NO OPTIONS LEFT except to print money and buy stocks and bonds, so their goal is to have gold as far from the $2,000/oz “point of no return” as possible when they announce it.

There’s your OFFICIAL QE3 WARNING from the Fed

Of course, with gold’s rock-solid 200 DMA approaching $1,600/oz (longer-term charts DO matter), and market stresses rising EXPONENTIALLY, the effect of such attacks should be limited, particularly in the PHYSICAL markets.  In other words, the further they try to get PAPER gold and silver prices down, the WIDER I expect premiums between PAPER and PHYSICAL prices to get.

By the way, I don’t want to give the impression that the only American issues arepolitical and criminal, which is FAR from the CASE.  The BLS can fudge the CPI or jobless claims numbers all it wants, but the fact is the economy is at best at stall speed, and more likely rapidly backpedaling when applying the TRUE inflation rate.

Moreover, the banking system is completely INSOLVENT due to the expanding cancer of the U.S. housing market COLLAPSE, and try not to laugh when a Fed governor speaks about the U.S. being immune to the European banking conflagration…

Fitch: Eurozone Contagion Poses Threat to U.S. Bank Rating Outlook

…particularly when numerous U.S. banks have MASSIVE, DIRECT exposure to Europe, such as MF Global (remember them?) and Jeffries & Co., a mid-sized investment bank with a history of shady dealings.

Jefferies back to single digits as implied DEFAULT PROBABILITY RISES

RECORD PLUNGE in Jeffries bonds

As for the ongoing, and ACCELERATING U.S. housing calamity, the article below encapsulates ALL that is wrong with the Fed’s insane ZIRP monetary policy.  The title says it all…

Mortgage rates lowest in decades, but FEW QUALIFY

…not only do plummeting savings, rising inflation, and soaring unemployment put a “crimp” in mortgage demand, but so do the unending increases in new taxes, fees, and surcharges, such as PROPERTY TAXES, which are now OFFICIALLY a greater menace than mortgage interest payments…

And the coup de grace of today’s U.S. of Corruption data, California’s plans to SHORTEN the SCHOOL YEAR because it is so broke.  Don’t forget, readers, “all’s well” if the Dow holds above 12,000, says the PPT.

California SO BROKE, it will SHORTEN SCHOOL YEAR!

Hopefully, today’s commentary will empower you further to make the RIGHT CHOICES, against the limitless forces trying to influence you to make the WRONG ones.

The final outcome is a fait accompli – only the WHEN and HOW remains to be answered.

If you do nothing, you will suffer the fate of the majority of the populace.

But if you PROTECT YOURSELF, you will SURVIVE, and likely THRIVE when the dust eventually settles!