When it comes to precious metals, an often discussed topic is whether one should own precious metal stocks or the actual physical metals. Here's some things to ponder if you are considering placing money into either.
Let's ask the question. Why does one own metals' stocks? Answer? Because you expect metal prices to rise. Any answer you give after this, takes second place, third, fourth, whatever!
Has the time, when the end of QE is ultimately priced in, finally arrived? Following another steep sell off in silver, matched only by the decimation in Chinese stocks, it appears margin calls have finally come to crude, which just plunged by $2 in seconds. And if the answer is yes, is this the expected rotation from the inflationary to deflationary mood which is so very critical for Bernanke to launch his third and final QEasing episode? Expect a major spike in real vol (not VIX) here if we have finally come to the inflection point.
...And that would be bears as in cartoon bears, who are now back for the 6th installment of their periodic, and very much unique and extemely politically incorrect and PG-18 recap of key developments in the silver market. Love them or hate them, they do provide an interesting thought experiment on what happens if silver does finally experience the long-expected technical drop.
The Guardian, which always does the fastest analysis of Wikileaks cables, has just released that back in 2008, US forces were as close as a few hundred yards away from OBL's Abbottabad compound (which incidentally is home to the Pakistan Military Academy which trains officers from across the nation. The academy is streets away from where Bin Laden was tracked down and killed.) From the Guardian: "The revelation that US forces were so close to the world's most wanted man in 2008 comes after material from the Guantánamo Files suggested the US may have received the intelligence that led them to Bin Laden as early as 2008. The US soldiers were due to perform a routine posting "training the trainers" of Pakistan's 70,000 strong federal military unit, the Frontier Corps." What a very unlucky coincidence. Surely, it explains the increased need for caffeine consumption by the Al Qaedan who surely needed to stay up at night and listen for SEALs jumping over the compound walls: "The two polite Pakistanis who helped Osama bin Laden hide in the shadow of their country’s army bought bulk food orders, chose major brands and equally favored Pepsi and Coke, neighbors and a local shopkeeper said." We wonder if the shopkeeper also sold the insulin so very desperately needed by the highly diabetic bin Laden following his Coke binges.
Following relentless margin hikes in silver on various exchanges, here are some thoughts on what may happen as the "regulators" do everything in their power to bring down commodity prices down as the broader population increasingly creates their own gold (and as the case may be silver) standard.
According to a just released Washington Post-Pew poll, Obama's rating from Monday night, following the digestion of the bin Laden news, hit 56% as respondents say they approve of the way Obama is handling his job as president, an increase of nine percentage points over April polls by Post-ABC News and Pew. On the other hand: "the new poll, conducted Monday evening by The Washington Post and the
Pew Research Center, also finds virtually no movement in Obama’s numbers
when it comes to handling the economy." That said, "that is the highest approval rating for the president in either poll since 2009." Alas, if history is any precedent, the small boost will rapidly wane unless the president does something about the number one concern on voters' minds: (no, not the Russell 2000) - gas. "Compared with the mid-April Post-ABC poll, Obama’s approval rating among independents is now 10 points higher, at 52 percent. Bush got an identical 10-point boost among independents in December 2003. For Bush, that lift proved short-lived, with the entire increase gone within six weeks." And then there is always the question of polling objectivity. Steve Brusk at CNN just tweeted: "New CNN/ORC poll: bin Laden raid brings only small bounce to President Obama's approval rating: now 52%, up 1% from before raid." It is to be fully expected that in a centrally planned economy, no number can be trusted, regardless of its source. Certainly not something as manipulated as the president's ratings.
The dollar managed to stage another faux-rally to the just above abysmal level of 73.30... for about 3 hours. At last check, the dollar is plunging and everything else is once again surging, meaning all those hoping for some miraculous spike in the USD on expectations that there will be a time when the USD will once again be a flight to safety will have to put their dreams on hold yet again. Remember: state healthcare benefits are 5% funded, so the Weimar rally (in stocks, if not so much the dollar), has to go on or else pensioners will realize there is 5 cents on every benefits dollar owed to them.
Forty years ago, hundreds of thousands of people took to the streets of Washington, D.C. to shut the city down. Their goal was to end the war in Vietnam. The National Guard was called out, and a huge melee ensued between the citizens who opposed the government's policies and the government itself, which viewed the citizens as impediments to its plans and ambitions. Six weeks later, the 7,000-page secret history of the government's deceptions of its own citizenry, The Pentagon Papers, was published. The documents detailed how the Federal government and the nation's elected leaders had purposefully misled the public for decades about their goals, intentions and policies. It made no difference. The war dragged on as the U.S. combat role was replaced by "Vietnamization" and wholesale bombing of Indochina. President Nixon won re-election by a landslide in 1972. In 1971, the American people welcomed wage-and-price controls, surcharges and the inflation of the nation's currency. It was a short-sighted way to stabilize the Status Quo, as history would prove; inflation roared ahead, decimating stocks, bonds, savings and wages, until Federal Reserve Chairman Paul Volcker raised interest rates to 16% a decade later in 1981 to choke off runaway inflation. Today, the nation pursues two hot wars launched under the same cloak of deception as the Vietnam War, and a policy of similarly masked financial manipulations and interventions by the Central State and the Federal Reserve. The number of classified documents has soared since the Pentagon Papers as the Central State seeks to hide all of its misdeeds and dodgy policies. The Federal Reserve invoked the threat of financial calamity and national security it its failed bid to keep its 2008 machinations secret. Only recently has the public learned the nation's central bank devoted 70% of its interventions to "saving" foreign banks. Once again, nobody cares.
While it is unclear if the 7 Year bond auctioned off last week (our commentary on that partcularly weak auction rescued by Primary Dealers is here) Cusip: 912828QG8 has even settled yet (it certainly is not on the Daily Treasury Statement as of Friday), what is clear is that as part of today's POMO which closed 30 minutes earlier, that very issue accounted for a whopping 78.5%, or $6 billion, of the entire operation. As a reminder, Primary Dealers bought $15.4 billion of the auction on Thursday, and just as we predicted, couldn't wait to flip it back to the Fed. Indeed, 39% of the entire allocation has now been flipped right back to Brian Sack. And people wonder why Bill Gross is paranoid that in the absence of the Fed this thoroughly fake bid will no longer be there. And with PDs actually forced to hold the bonds they quote-unquote bid for, one wonders: what clearing price will be appropriate, once the flip game ends?
Earlier today, GM posted better than expected April car sales, with total US sales up 26.4% on expectations of 14%. How much of this is due to a Toyota impairment is unclear. What is clear is that channel stuffing at Government Motors, whose Chinese sales are far more important than US sales these days, just hit a new all time record of 577,000, higher than the previous record of 574,000 from March, and 149,000 higher compared to a year ago. The good thing is that GM will never be able to complain about lack of inventory: it now has two and a half months worth of sales equivalent parked on warehouse financed dealer storefronts, in the form of rapidly depreciating autos.
The Johnny Fived and persistently broken market continues to remind about itself, 3 days ahead of the May 6 flash crash anniversary. Today's first victim: anyone who had 20% or greater stop loss triggers in Ambow Education Holding. The stock plunged from over $6 to just over $1 in millisecond. Courtesy of Nanex, we bring you the chart of yet another algo gone apeshit which in 3 seconds traded a few thousands shares on both the Nasdaq and Pacific Exchange.
Due To "Triple Damages" Under False Claims Act, Deutsche Bank Damages May Total More Than $1 Billion - Full Lawsuit AttachedSubmitted by Tyler Durden on 05/03/2011 - 10:47
Step aside Goldman Sachs, welcome Deutsche Bank: "This is a civil mortgage fraud lawsuit brought by the United States against Deutsche Bank and MortgageIT. As set forth below, Deutsche Bank and MortgageIT repeatedly lied to be included in a Government program to select mortgages for insurance by the Government. Once in that program, they recklessly selected mortgages that violated program rules in blatant disregard of whether borrowers could make mortgage payments. While Deutsche Bank and MortgageIT profited from the resale of these Government-insured mortgages, thousands of America homeowners have faced default and eviction, and the Government has paid hundreds of millions of dollars in insurance claims, with hundreds of millions of dollars more expected to be paid in the future... Deutsche Bank and MortgageIT had powerful financial incentives to invest resources into generating as many FHA-insured mortgages as quickly as possible for resale to investors... DB and MortgageIT repeatedly lied to HUD to obtain and maintain MortgageIT's Direct Endorsement Lender status.... Their violations of HUD rules were egregious." And what investors are focused on: "In this suit, the United States seeks treble damages and penalties under the False Claims act and compensatory and punitive damages under the common law theories of breach of fiduciary duty, gross negligence, negligence, and indemnification for the insurance claims already paid by HUD for mortgages wrongfully endorsed by MortgageIT. In addition, the United States seeks compensatory and punitive damages." And what is also notable is that this fraud persisted well past the housing crunch, continuing well into 2009 according to the lawsuit.
Pew Finds $1.26 Trillion State Retirement Shortfall, Says States Only Have $31 Billion In Assets To Pay For $635 Billion In LiabilitiesSubmitted by Tyler Durden on 05/03/2011 - 10:38
For those wondering why the Fed's third mandate is so critical, and is arguably about more than padding the brokerage accounts of those top 400 US "taxpayers" who account for 10% of capital gains, the Pew center brings what could be the main reason. Which is that even while factoring an 8% discount rate (for most states, some are probably higher), in other words expecting 8% gains in their assets, "the gap between the promises states made for employees’ retirement benefits and the money they set aside to pay for them grew to at least $1.26 trillion in fiscal year 2009, resulting in a 26 percent increase in one year." The difference is broken down as follows: "State pension plans represented slightly more than half of this shortfall, with $2.28 trillion stowed away to cover $2.94 trillion in long-term liabilities—leaving about a $660 billion gap, according to an analysis by the Pew Center on the States. Retiree health care and other benefits accounted for the remaining $604 billion, with assets totaling $31 billion to pay for $635 billion in liabilities." In other words, states have roughly 5 cents for every dollars in health benefits obligations. Good luck with funding that absent America becoming Weimar.
Stocks See Brief Pop On Beat In Factory Orders, Durable Goods Revision Even As Numbers Impact Q1 Economic DataSubmitted by Tyler Durden on 05/03/2011 - 10:12
March Factory Orders came out at a stronger than expected 3.0%, on expectations of 2.0%, while the previous number was revised to 0.7% from -0.1%. More importantly Durable Goods were revised from 2.5% to 2.9%, with Durables ex-transportation revised from 1.3% to 1.8%. Yet one wonders how March data is all that critical considering April has already passed and according to diffusion indices the economy is already seeing a modest contraction. At best this number will result in a hike to Q1 GDP from already a painfully low 1.8% as reported last week. Needless to say, the Japanese weakness was not to be expected in March and will only affect the economy in April and onward. Look for car sales data for the first true indication of how the Japan effect is impacting US production.