Archive - Mar 2011

The great Gold Bull Market of the 20th Century is said to have started in 1972, just after Richard Nixon announced on August 15, 1971, he was taking the United States off the Gold Standard. At that time Nixon realized foreign countries were hoarding more gold and silver-backed currency than could actually be redeemed by the precious metal's reserves we held.

How I learned to stop worrying and love the Black Swan...

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 24/03/11

While the broader population continues to read stories of a stoic Tokyo population, casually taking each day of deteriorating news from Fukushima in stride, the reality is far from what is being represented. The latest escalation: Tokyo is running out of bottle water, now that the government disclosed (with a two week delay), that drinking water is irradiated. From Reuters: "Many shops in Japan's capital ran out of bottled water on Thursday after a warning of radiation danger for babies from a damaged nuclear plant where engineers are battling the world's worst atomic crisis since Chernobyl." And if the government appears to be on the verge of losing control (and no city of 13 million can operate without water, no matter how bullish Douche Bank's chief strategist sounds on CNBC) after disclosing this one factoid, what happens when the true extent of the secondary effects from Fukushima are made public: "The government urged residents not to panic and hoard bottled water -- but many shops quickly sold out."If this is long term, I think we have a lot to worry about," said Riku Kato, father of a one-year-old baby." Perhaps it is time for Malcolm Gladwell to do a tipping point analysis of herding mentality, vis-a-vis a decision to participate in a mass urban exodus. Which brings up tonight's $64k question: is Snake Plissken too old for the "Escape from Tokyo" sequel.

Something rather disturbing from a European trading desk...

In tried and true fashion, just as Silver was about to viciously destabilize the global capital markets as it surged to new 31 year highs, the CME stepped in and did its usual 3-6 half life intervention by hiking initial and maintenance margins on silver futures from $11,138 and $8,250 to $11,745 and $8,700 respectively. This is merely the latest margin hike in what appears to be a neverneding series designed to reduce speculative "fervor" courtesy of endless liquidity. What it will do is merely provide a better entry point for those who by now realize that silver's next stop in the fiat endgame is $40, then $50, and so forth. Naturally, the price drop in silver caused gold to sell off too. And now that the CME accepts gold as collateral, we can't even visualize the reflexive loops that develop once the metal that is also a collateral currency becomes more and less valuable at the same time.

In case you wondered where the title for this piece came from, it was actually the message that popped out my fortune cookie during a meal on Monday night. It just summed up so many things for me. It summarized why our culture is so damaged. At the core of the malignancy killing the nation is the fact that we possess the world’s reserve currency that can be created at will out of thin air and forced upon goods producing nations (whether manufacturing or resource goods). This means we do not need to produce to consume, which hollows out the entire core of the economy over time and has made us the generally lazy and decadent society we are today. I mean take for example the C announcement recently of a reverse 1 for 10 stock split. I haven’t heard such an embarrassing press release since reading about how U.S. taxpayers are going to make money from the bailouts. So for the last year all I heard on propaganda channel CNBC was how once C’s shares got above $5 it would attract a whole new class of investors and the shares would soar. Well the stock wasn’t able to hold above $5 so look what happened. Magic, they are just going to make the stock trade at $45 with this scheme. Bankers can’t lose, didn’t you get the memo? Oh and they are paying a whole penny a share in dividends. You have got to be kidding me guys. Pathetic.

Way back in August 2006, near the top of the housing bubble, I suggested a two-part scenario for the housing bust: it would take eight more years to play out, and the declines would occur in sharp downlegs following a phase-shift model. A few months later, literally at the top of the housing bubble in early 2007, I suggested that a mere 4% of homeowners defaulting could trigger a collapse of the entire U.S. housing market. That is pretty much exactly what happened, for when the 4% who couldn't pay their subprime mortgages folded, they took down an exquisitely corrupt and vulnerable banking sector and the FIRE (finance, insurance, real estate) economy which had come to depend on it.

With all due respect to that Nassim Taleb dude who popularized the term “Black Swasn”, Black Swan events are both overrated and the term is sloppily bandied about by those who may not be putting the requisite thought into just how utilitarian the knowledge of Black Swans actually are. Since you can’t accurately predict, nor back test against, nor adequately hedge against such events, exactly what good is a Black Swan discussion. Well, I can answer that question.

That a CEO of a silver miner sees precious metals prices rising, especially on a day like today when silver hit a new 31 year high (and gold is at a record) is not surprising. Especially since that is precisely what happened: "The head of U.S. silver miner Coeur d'Alene Mines
Corp said on Thursday that he "would not be
surprised" if silver prices reached the mid-$40s per ounce and gold
prices rose to $1,500 to $1,600 an ounce this year." What is, however,  surprising is that another prominent silver miner, Pan American silver, announced during its earning call that "it plans to produce between 23-24 million ounces of silver in 2011, down from 24.3 million ounces in 2010. The company said it expects to produce between 76,000-78,000 ounces of gold in 2011, down from the 89,555 ounces it produced last year." So despite a record price in silver, the company is unable or unwilling to mine more to keep up with demand? Perhaps the peak [blank] crowd should take a long hard look at silver.

The “Hunt Brother High” is within reach. The total demand for silver today is the same as it was in 1980, when their corning drove it to $50/ounce.
Investment demand is overwhelming industrial demand by a large margin. Should I let target creep take hold and raise my long term forecast to $100? That might be really insane! (SLV), (AGQ), (CDE), (SLW).

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 24/03/11

Two weeks ago the Anonymous hacker collective released a video indicating it was moving to a peaceful form of civil disobedience, until such time as the Fed is abolished, to be preceded by the "sign of good faith" that is Bernanke's stepping down. Needless to say, so far Bernanke has not quit. So today Anonymous' OpESR has released a second video which unlike the previous one is more or less a collage of hacker-friendly video clips. Hopefully there is some more to this latest form of anonymous activism than the clever use of iMovie...

A little closer to home....

In a very unsurprising move, Fitch just downgraded Portugal to A-, is on Rating Watch Negative, and may be downgraded further. Nobody cares since everyone knows all too well Europe is pretty much insolvent. In fact we are shocked the EURUSD is not at 2.00 on the news.