Silver Brick Road: October 2010

Sunday, October 31, 2010

The overwhelming volume of sell transactions relative to buy transactions by company insiders over the last six months in key leading sectors of the market is the worst Alan Newman, editor of the Crosscurrents newsletter, has ever seen since he began tracking the data.

http://www.cnbc.com/id/39850796

Pimco likens US to 'Ponzi' scheme

US authorities are operating a "brazen" Ponzi scheme in government debt by buying trillions of dollars of bonds to stimulate the economy, according to Bill Gross, managing director of Pimco, the world's biggest bond house.

http://www.telegraph.co.uk/finance/economics/8090902/Pimco-likens-US-to-Ponzi-scheme.html

Thursday, October 28, 2010

The Investment of all Investments

The purpose in writing this is to give an overview of the information that I have come to understand, and which has pointed me to accumulate silver over the last years over gold. (I do suggesting owning both). Making silver in my opinion the investment of all investments. All the information in here can be searched and confirmed, sorry I am not providing all up-to-date links for each of these points, CFTC chairman Chilton’s comments are what prompt me to write this today (and in a hurry, so I apologize for any possible errors in advance). These points are interconnected so it’s a bit hard to put them in point form. There are many reasons 3 main being; 1. Regulatory change 2. Investor demand 3. Industrial use. Each point could, and most likely will, set off the other points.

1. Regulatory Changes & the coming ‘Short Squeeze’ in the Futures commodity markets

-the COMEX has been the epicenter of metals trading, on the COMEX the commercials (bullion banks) hold the largest ‘SHORT’ (selling) position in silver than any of the commodities markets, much larger than world production and present deliverable inventories. They either BUY to close their trade for a profit (at lower prices then they first SOLD) or they are forced to buy at higher prices for a loss (at higher prices than they first SOLD). Either way there is buying pressure.

-Even if they don’t liquidate, as long as the commercials don’t add to their SHORT trades, the price will rise (as seen over October). If they are forced to sell (for reasons listed below) then there will be panic buying, and the ‘short squeeze’ of these commercial banks. See the COT Chart here

-The Dodd/Frank financial reform bill requires position limits; by all accounts the Commercials bank’s positions need to be brought to a much lower level.

-The CFTC will determine/enforce position limits. Silver specific; there is presently a 2 year ongoing investigation, on which CFTC Chairman has finally commented; 'There have been fraudulent efforts to persuade and deviously control that price. Any such violation of the law in this regard should be prosecuted.' Its only a matter of time now.

2. ‘Paper Silver’ Market vs ‘Physical Market’; Investor Demand

-Over the decades precious metals held by central banks, earning nothing by storing the metal, have been ‘Leased’ and sold to the worlds ‘paper markets’ and the amount of ‘paper precious metals’ certificates does NOT reflect actual silver/gold inventory’s. All of this ‘leased metal’ will not be available to return to those who ‘leased’. When this becomes fully understood an avalanche of Physical redemptions by banks would begin. See GATA for lots of info

-There are some institutions that issue ‘paper silver’ certificates, that because of the above mentioned leasing (and other reasons), has led many to question their backing, and the obvious counter-party risk. Because of this many are taking delivery of their metal, thus pulling it out of the present system (thus straining present inventory further).

-As world silver inventories have decreased (for last 70yrs), fiat money, and credit has expanded to historic proportions. Investors & Central Banks of the World have historically low exposure to precious metals. Central banks of the world are now reversing decade’s long trends and becoming buyers of precious metals rather than sellers.

-The Worlds population continues to increase, and a portion of this population will always turn in their fiat money into precious metals, with or without crisis’s. This pattern will only be accentuated as people’s faith in central planning & in their fiat decreases, which we are witnessing today.

-‘Quantities Easing’ (money printing), Currency Intervention (BOJ in Sept), Currency Pegs (Yuan), Bail Outs (US & EU), all expand the money supply, diluting the fiat money’s value already in circulation (inflation). Promises made by Governments of the world (Social Security, etc) are unfunded liabilities that will have to be papered over again, meaning more dilution of your purchasing power.

-If silver were to hit its 1980 nominal high it would be at $50 per oz, if it reached the same high in today’s inflation adjusted dollars it would somewhere near $130.00 per oz.

-The Gold to Silver ratio is stretched to historic levels, meaning silver has a lot of catch up to do. See this video

3. Industrial Use

-Besides Petroleum, Silver is the most used commodity in the world, (thousand of applications) and when it is used for industrial purposes it is for the most part, destroyed & unrecoverable.

-It is estimated that over the last 70 years 95% of the world’s entire inventory has been consumed, this is roughly 10 Billion ounces accumulated over hundreds, if not thousands of years, consumed in the last 70 years.

-Industries that use silver will continue to purchase silver no matter what the price, as for most products it used in, the amount is a small percentage of the total cost, however if they don’t have it they cannot produce their product, and would have to shut down assembly.

-When panic buying begins, industries will join in buying to secure inventory to secure future production.

4. Future

-One of the results of unfolding debt, currency crisis, will be governments of the world being forced to deal in something more tangible than fiat paper and their ‘promises’, which currently require ‘faith’. Market forces will dictate this result (Gresham’s law)

-Money should have (as Aristotle pointed out) a store of wealth quality; be durable/consistent, divisible, portable/convenient, & with intrinsic value, historically Gold/Silver have been used, those who see the paper mess unfolding, and the inability of governments to fund their promises, would do well to put their fiat money into real money.

-The Collapse of Bretton Woods with Nixon cutting the Gold connection the USD (1971’s), has been the sole cause of many of the worlds problems (War!), fractional reserve banking & debt financing increased money supply, assets values rose, all was well, this great experiment, gone global, has gone on for decades now, and has finally exhausted itself & is coming to an end, as all fiat money has come to an end. In the western developed economy’s there are no more ‘assets’ to inflate to allow the ‘consumer’ borrow against to continue his ‘consuming’ (Think HEW Home Equity Withdraws), and now the great de-levering ensues. See this video that debunks that we can continue indefinetely having 'growth'

-With the Bailouts (& FED, Treasury deals) much of the private sector debt (there is still much more) has now moved to the sovereign level, temporarily buying time before the next leg, there are political, fiscal & monetary limits to how much can be borrowed & monetized ("Quantative easing", running the printing presses) by governments, as Greece showed it can all transpire in a very short period of time. With silver if the economy's of the world continue without a hitch it'll do well, and if there is a hitch it should also do well.

Conclusion: Nearly everything seems to point to a silver shortage in the near future, based on present inventories, industrial use, and Investor demand, meaning substantially higher prices. Get some exposure now, use lower prices (and expect this volatility) as an opportunity to buy more, hold positions that you can't be forced out of (Not on Margin, unless your prepared for volatility with deep pockets) for these reasons and more I believe that this will be the investment of all investments.

For those in Asia, where countries have Current Account Surplus your fiat money purchasing power is eroding slower than the USD (but all fiat currency’s buying power is eroding), now while it is strong is a good time, in my opinion to move a good portion into metals. Every fiat currency ever issued in the history of the world has come to its intrinsic value of 0.

Basics:

-There are 2 positions one can take in a market 1. Buyer (Long/Bull/Bullish) 2. Seller (Short/Bear/Bearish).

-In order to close the trade, you have to 1. Buy back if you first Sold, or 2. Sell if you first Bought.

-All trades on the futures market are required to post a deposit, if a market moves significantly against you (if you BUY and it goes down, or if you SELL and it goes up), at some point you are required post more of a deposit to keep your trade (Called a MARGIN CALL), if you don’t post additional funds your position will be liquidated for a loss). When this happens en-masse it is a called a ‘SHORT SQUEEZE’.

Thursday, October 21, 2010

U.S. is currency war's "tomb maker" -China economist

Oct 14 (Reuters) - The United States fired the first shot in the currency war and the rest of the world must be on guard for its deliberate strategy to devalue the dollar, a Chinese economist said in an official newspaper on Thursday.
http://www.reuters.com/article/idUSTOE69D04120101014

JPMorgan Sells $4 Billion of Debt Amid Loan Scrutiny

http://www.zerohedge.com/article/here-comes-scramble-capital-jpm-raise-4-billion

Why the U.S. Has Launched a New Financial World War -- and How the Rest of the World Will Fight Back

http://www.alternet.org/news/148481/why_the_u.s._has_launched_a_new_financial_world_war_--_and_how_the_rest_of_the_world_will_fight_back_/?page=entire

Should Germany worry about leaving its gold with U.S.?

They should be, the U.S. because of its Gold Reserves is able to play chicken with the rest of the worlds Fiat money.

http://www.gata.org/node/9171

South Korea's central bank looks to gold

http://www.gata.org/node/9174

Silver Exports From China May Slump by 40% This Year

"Silver Exports From China May Slump by 40% This Year". Customs data show [that] exports plunged almost 60 percent to 970 tons in the first eight months of 2010.

http://washpost.bloomberg.com/story?docId=1376-LAGPV00D9L3501-3CS5T7V4QP69PC4BKK488Q9GLD

Mortgage Buybacks May Cost Lenders $120 Billion, JPMorgan Says

But guess what kind of liquid capital (cash reserves) they have?

http://www.businessweek.com/news/2010-10-18/mortgage-buybacks-may-cost-lenders-120-billion-jpmorgan-says.html

Some Older Photo's that I've saved.

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Here is the real reason the ECB Stepped in with their own 'Trillion Dollar Bailout' to buy Greek Debt, the house of Fiat Cards would crumble.

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See http://www.shadowstats.com/ for the way they've changed HOW they calculate statistics, and updates.

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Comparison Chart for 1937 to 2010, of course they didn't have Helicopter Ben or PPT (Plung Protection Team)

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Houses were overpriced in all cents of the word.

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Why do they keep low interest rates, punish savers? The answer is below;

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Banks/Investors are already shifting away from Fiat Money, as they continue to shift to more historical proportions it will put more pressure on prices, to be higher!

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Silver has much farther to go than Gold, wait till investor demand really kicks in as it as in Gold.

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This is NOT an ordinary recession, it is a depression, based on a delevering private sector, and soon a delevering of the public.

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Dilution of the present Fiat money in circulation, wait for velocity of money to increase and its only a matter of time for all of this money creation to come home to roost.

Banks are sitting on this money right now, getting it basically for free from the Federal Reserve, and lending to the Treasury, while they write down losses on their 'assets' which courtsey of changes in FASB accounting rules (Mark to Market was thrown out) they have some breathing room. Velocity of Money is the key to when hyperinflation breaks out, then all this money will come pouring out, either because they are scared to hold, or economic conditions have improved, or ......

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Soon, Japan, France, U.S., the U.K. to follow in Greece, Portugal, Ireland, Spains foot steps.

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The private sector continues to take money out of the market, que PPT

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CFTC will be putting position limits on commodity's (courtsey of the Dodd/Frank reform laws), these sellers (Bullion Banks) will have to become buyers, they either do this by forcing the price lower for a profit, or are forced out for a loss, either way they have to buy it back to exit, which they must at some time.