Friday, February 28, 2014

The hows and whys of gold manipulation.

Hows and whys of gold price manipulation
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Sat Jan 18, 2014 9:52AM GMT
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By Dr Paul Craig Roberts
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The deregulation of the financial system during the Clinton and George W. Bush regimes had the predictable result: financial concentration and reckless behavior. A handful of banks grew so large that financial authorities declared them “too big to fail.”
Removed from market discipline, the banks became wards of the government requiring massive creation of new money by the Federal Reserve in order to support through the policy of Quantitative Easing the prices of financial instruments on the banks’ balance sheets and in order to finance at low interest rates trillion dollar federal budget deficits associated with the long recession caused by the financial crisis.
The Fed’s policy of monetizing one trillion dollars of bonds annually put pressure on the US dollar, the value of which declined in terms of gold. When gold hit $1,900 per ounce in 2011, the Federal Reserve realized that $2,000 per ounce could have a psychological impact that would spread into the dollar’s exchange rate with other currencies, resulting in a run on the dollar as both foreign and domestic holders sold dollars to avoid the fall in value. Once this realization hit, the manipulation of the gold price moved beyond central bank leasing of gold to bullion dealers in order to create an artificial market supply to absorb demand that otherwise would have pushed gold prices higher. The manipulation consists of the Fed using bullion banks as its agents to sell naked gold shorts in the New York Comex futures market. Short selling drives down the gold price, triggers stop-loss orders and margin calls, and scares participants out of the gold trusts. The bullion banks purchase the deserted shares and present them to the trusts for redemption in bullion. The bullion can then be sold in the London physical gold market, where the sales both ratify the lower price that short-selling achieved on the Comex floor and provide a supply of bullion to meet Asian demands for physical gold as opposed to paper claims on gold.
The evidence of gold price manipulation is clear. In this article we present evidence and describe the process. We conclude that ability to manipulate the gold price is disappearing as physical gold moves from New York and London to Asia, leaving the West with paper claims to gold that greatly exceed the available supply.
The primary venue of the Fed’s manipulation activity is the New York Comex exchange, where the world trades gold futures. Each gold futures contract represents one gold 100 ounce bar. The Comex is referred to as a paper gold exchange because of the use of these futures contracts. Although several large global banks are trading members of the Comex, JP Morgan, HSBC and Bank Nova Scotia conduct the majority of the trading volume. Trading of gold (and silver) futures occurs in an auction-style market on the floor of the Comex daily from 8:20 a.m. to 1:30 p.m. New York time. Comex futures trading also occurs on what is known as Globex. Globex is a computerized trading system used for derivatives, currency and futures contracts. It operates continuously except on weekends. Anyone anywhere in the world with access to a computer-based futures trading platform has access to the Globex system.
In addition to the Comex, the Fed also engages in manipulating the price of gold on the far bigger–in terms of total dollar value of trading–London gold market. This market is called the LBMA (London Bullion Marketing Association) market. It is comprised of several large banks who are LMBA market makers known as “bullion banks” (Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorganChase, Merrill Lynch/Bank of America, Mitsui, Societe Generale, Bank of Nova Scotia and UBS). Whereas the Comex is a “paper gold” exchange, the LBMA is the nexus of global physical gold trading and has been for centuries. When large buyers like Central Banks, big investment funds or wealthy private investors want to buy or sell a large amount of physical gold, they do this on the LBMA market.
The Fed’s gold manipulation operation involves exerting forceful downward pressure on the price of gold by selling a massive amount of Comex gold futures, which are dropped like bombs either on the Comex floor during NY trading hours or via the Globex system. A recent example of this occurred on Monday, January 6, 2014. After rallying over $15 in the Asian and European markets, the price of gold suddenly plunged $35 at 10:14 a.m. In a space of less than 60 seconds, more than 12,000 contracts traded – equal to more than 10% of the day’s entire volume during the 23 hour trading period in which which gold futures trade. There was no apparent news or market event that would have triggered the sudden massive increase in Comex futures selling which caused the sudden steep drop in the price of gold. At the same time, no other securities market (other than silver) experienced any unusual price or volume movement. 12,000 contracts represents 1.2 million ounces of gold, an amount that exceeds by a factor of three the total amount of gold in Comex vaults that could be delivered to the buyers of these contracts.
This manipulation by the Fed involves the short-selling of uncovered Comex gold futures. “Uncovered” means that these are contracts that are sold without any underlying physical gold to deliver if the buyer on the other side decides to ask for delivery. This is also known as “naked short selling.” The execution of the manipulative trading is conducted through one of the major gold futures trading banks, such as JPMorganChase, HSBC, and Bank of Nova Scotia. These banks do the actual selling on behalf of the Fed. The manner in which the Fed dumps a large quantity of futures contracts into the market differs from the way in which a bona fide trader looking to sell a big position would operate. The latter would try to work off his position carefully over an extended period of time with the goal of trying to disguise his selling and to disturb the price as little as possible in order to maximize profits or minimize losses. In contrast, the Fed‘s sales telegraph the intent to drive the price lower with no regard for preserving profits or fear or incurring losses, because the goal is to inflict as much damage as possible on the price and intimidate potential buyers.
The Fed also actively manipulates gold via the Globex system. The Globex market is punctuated with periods of “quiet” time in which the trade volume is very low. It is during these periods that the Fed has its agent banks bombard the market with massive quantities of gold futures over a very brief period of time for the purpose of driving the price lower. The banks know that there are very few buyers around during these time periods to absorb the selling. This drives the price lower than if the selling operation occurred when the market is more active.
A primary example of this type of intervention occurred on December 18, 2013, immediately after the FOMC announced its decision to reduce bond purchases by $10 billion monthly beginning in January 2014. With the rest of the trading world closed, including the actual Comex floor trading, a massive amount of Comex gold futures were sold on the Globex computer trading system during one of its least active periods. This selling pushed the price of gold down $23 dollars in the space of two hours. The next wave of futures selling occurred in the overnight period starting at 2:30 a.m. NY time on December 19th. This time of day is one of the least active trading periods during any 23 hour trading day (there’s one hour when gold futures stop trading altogether). Over 4900 gold contracts representing 14.5 tonnes of gold were dumped into the Globex system in a 2-minute period from 2:40-2:41 a.m, resulting in a $24 decline in the price of gold. This wasn’t the end of the selling. Shortly after the Comex floor opened later that morning, another 1,654 contracts were sold followed shortly after by another 2,295 contracts. This represented another 12.2 tonnes of gold. Then at 10:00 a.m. EST, another 2,530 contracts were unloaded on the market followed by an additional 3,482 contracts just six minutes later. These sales represented another 18.7 tonnes of gold.

All together, in 6 minutes during an eight hour period, a total amount of 37.6 tonnes (a “tonne” is a metric ton–about 10% more weight than a US ”ton”) of gold future contracts were sold. The contracts sold during these 6 minutes accounted for 10% of the total volume during that 23 hours period of time. Four-tenths of one percent of the trading day accounted for 10% of the total volume. The gold represented by the futures contracts that were sold during these 6 minutes was a multiple of the amount of physical gold available to Comex for delivery.
The purpose of driving the price of gold down was to prevent the announced reduction in bond purchases (the so-called tapering) from sending the dollar, stock and bond markets down. The markets understand that the liquidity that Quantitative Easing provides is the reason for the high bond and stock prices and understand also that the gains from the rising stock market discourage gold purchases. Previously when the Fed had mentioned that it might reduce bond purchases, the stock market fell and bonds sold off. To neutralize the market scare, the Fed manipulated both gold and stock markets. (See Pam Martens for explanation of the manipulation of the stock market: http://wallstreetonparade.com/2013/12/why-didn’t-the-stock-market-sell-off-on-the-fed’s-taper-announcement/ )

While the manipulation of the gold market has been occurring since the start of the bull market in gold in late 2000, this pattern of rampant manipulative short-selling of futures contracts has been occurring on a more intense basis over the last 2 years, during gold’s price decline from a high of $1900 in September 2011. The attack on gold’s price typically will occur during one of several key points in time during the 23 hour Globex trading period. The most common is right at the open of Comex gold futures trading, which is 8:20 a.m. New York time. To set the tone of trading, the price of gold is usually knocked down when the Comex opens. Here are the other most common times when gold futures are sold during illiquid Globex system time periods:
- 6:00 p.m NY time weekdays, when the Globex system re-opens after closing for an hour;
- 6:00 p.m. Sunday evening NY time when Globex opens for the week;
- 2:30 a.m. NY time, when Shanghai Gold Exchange closes
- 4:00 a.m. NY time, just after the morning gold “fix” on the London gold market (LBMA);
2:00 p.m. NY time any day but especially on Friday, after the Comex floor trading has closed – it’s an illiquid Globex-only session and the rest of the world is still closed.
In addition to selling futures contracts on the Comex exchange in order to drive the price of gold lower, the Fed and its agent bullion banks also intermittently sell large quantities of physical gold in London’s LBMA gold market. The process of buying and selling actual physical gold is more cumbersome and complicated than trading futures contracts. When a large supply of physical gold hits the London market all at once, it forces the market a lot lower than an equivalent amount of futures contracts would. As the availability of large amounts of physical gold is limited, these “physical gold drops” are used carefully and selectively and at times when the intended effect on the market will be most effective.
The primary purpose for short-selling futures contracts on Comex is to protect the dollar’s value from the growing supply of dollars created by the Fed’s policy of Quantitative Easing. The Fed’s use of gold leasing to supply gold to the market in order to reduce the rate of rise in the gold price has drained the Fed’s gold holdings and is creating a shortage in physical gold. Historically most big buyers would leave their gold for safe-keeping in the vaults of the Fed, Bank of England or private bullion banks rather than incur the cost of moving gold to local depositories. However, large purchasers of gold, such as China, now require actual delivery of the gold they buy.
Demands for gold delivery have forced the use of extraordinary and apparently illegal tactics in order to obtain physical gold to settle futures contracts that demand delivery and to be able to deliver bullion purchased on the London market (LBMA). Gold for delivery is obtained from opaque Central Bank gold leasing transactions, from “borrowing” client gold held by the bullion banks like JP Morgan in their LBMA custodial vaults, and by looting the gold trusts, such as GLD, of their gold holdings by purchasing large blocks of shares and redeeming the shares for gold.
Central Bank gold leasing occurs when Central Banks take physical gold they hold in custody and lease it to bullion banks. The banks sell the gold on the London physical gold market. The gold leasing transaction makes available physical gold that can be delivered to buyers in quantities that would not be available at existing prices. The use of gold leasing to manipulate the price of gold became a prevalent practice in the 1990′s. While Central Banks admit to engaging in gold lease transactions, they do not admit to its purpose, which is to moderate rises in the price of gold, although Fed Chairman Alan Greenspan did admit during Congressional testimony on derivatives in 1998 that “Central banks stand ready to lease gold in increasing quantities should the price rise.”
Another method of obtaining bullion for sale or delivery is known as “rehypothecation.” Rehypothecation occurs when a bank or brokerage firm “borrows” client assets being held in custody by banks. Technically, bank/brokerage firm clients sign an agreement when they open an account in which the assets in the account might be pledged for loans, like margin loans. But the banks then take pledged assets and use them for their own purpose rather than the client’s. This is rehypothecation. Although Central Banks fully disclose the practice of leasing gold, banks/brokers do not publicly disclose the details of their rehypothecation activities.
Over the course of the 13-year gold bull market, gold leasing and rehypothecation operations have largely depleted most of the gold in the vaults of the Federal Reserve, Bank of England, European Central Bank and private bullion banks such as JPMorganChase. The depletion of vault gold became a problem when Venezuela was the first country to repatriate all of its gold being held by foreign Central Banks, primarily the Fed and the BOE. Venezuela’s request was provoked by rumors circulating the market that gold was being leased and hypothecated in increasing quantities. About a year later, Germany made a similar request. The Fed refused to honor Germany’s request and, instead, negotiated a seven year timeline in which it would ship back 300 of Germany’s 1500 tonnes. This made it apparent that the Fed did not have the gold it was supposed to be holding for Germany.
Why does the Fed need seven years in which to return 20 percent of Germany’s gold? The answer is that the Fed does not have the gold in its vault to deliver. In 2011 it took four months to return Venezuela’s 160 tonnes of gold. Obviously, the gold was not readily at hand and had to be borrowed, perhaps from unsuspecting private owners who mistakenly believe that their gold is held in trust.
Western central banks have pushed fractional gold reserve banking to the point that they haven’t enough reserves to cover withdrawals. Fractional reserve banking originated when medieval goldsmiths learned that owners of gold stored in their vault seldom withdrew the gold. Instead, those who had gold on deposit circulated paper claims to gold. This allowed goldsmiths to lend gold that they did not have by issuing paper receipts. This is what the Fed has done. The Fed has created paper claims to gold that does not exist in physical form and sold these claims in mass quantities in order to drive down the gold price. The paper claims to gold are a large multiple of the amount of actual gold available for delivery. The Royal Bank of India reports that the ratio of paper claims to gold exceed the amount of gold available for delivery by 93:1.
Fractional reserve systems break down when too many depositors or holders of paper claims present them for delivery. Breakdown is occurring in the Fed’s fractional bullion operation. In the last few years the Asian markets–specifically and especially the Chinese–are demanding actual physical delivery of the bullion they buy. This has created a sense of urgency among the Fed, Treasury and the bullion banks to utilize any means possible to flush out as many weak holders of gold as possible with orchestrated price declines in order to acquire physical gold that can be delivered to Asian buyers.
The $650 decline in the price of gold since it hit $1900 in September 2011 is the result of a manipulative effort designed both to protect the dollar from Quantitative Easing and to free up enough gold to satisfy Asian demands for delivery of gold purchases.
Around the time of the substantial drop in gold’s price in April, 2013, the Bank of England’s public records showed a 1300 tonne decline in the amount of gold being held in the BOE bullion vaults. This is a fact that has not been denied or reasonably explained by BOE officials despite several published inquiries. This is gold that was being held in custody but not owned by the Bank of England. The truth is that the 1300 tonnes is gold that was required to satisfy delivery demands from the large Asian buyers. It is one thing for the Fed or BOE to sell, lease or rehypothecate gold out of their vault that is being safe-kept knowing the entitled owner likely won’t ask for it anytime soon, but it is another thing altogether to default on a gold delivery to Asians demanding delivery.
Default on delivery of purchased gold would terminate the Federal Reserve’s ability to manipulate the gold price. The entire world would realize that the demand for gold greatly exceeds the supply, and the price of gold would explode upwards. The Federal Reserve would lose control and would have to abandon Quantitative Easing. Otherwise, the exchange value of the US dollar would collapse, bringing to an end US financial hegemony over the world.
Last April, the major takedown in the gold price began with Goldman Sachs issuing a “technical analysis” report with an $850 price target (gold was around $1650 at that time). Goldman Sachs also broadcast to every major brokerage firm and hedge fund in New York that gold was going to drop hard in price and urged brokers to get their clients out of all physical gold holdings and/or shares in physical gold trusts like GLD or CEF. GLD and CEF are trusts that purchase physical gold/silver bullion and issue shares that represent claims on the bullion holdings. The shares are marketed as investments in gold, but represent claims that can only be redeemed in very large blocks of shares, such as 100,000, and perhaps only by bullion banks. GLD is the largest gold ETF (exchange traded firm), but not the only one. The purpose of Goldman Sachs’ announcement was to spur gold sales that would magnify the price effect of the short-selling of futures contracts. Heavy selling of futures contracts drove down the gold price and forced sales of GLD and other ETF shares, which were bought up by the bullion banks and redeemed for gold.
At the beginning of 2013, GLD held 1350 tonnes of gold. By April 12th, when the heavy intervention operation began, GLD held 1,154 tonnes. After the series of successive raids in April, the removal of gold from GLD accelerated and currently there are 793 tonnes left in the trust. In a little more than one year, more than 41% of the gold bars held by GLD were removed – most of that after the mid-April intervention operation.
In addition, the Bank of England made its gold available for purchase by the bullion banks in order to add to the ability to deliver gold to Asian purchasers.
The financial media, which is used to discredit gold as a safe haven from the printing of fiat currencies, claims that the decline in GLD’s physical gold is an indication that the public is rejecting gold as an investment. In fact, the manipulation of the gold price downward is being done systematically in order to coerce holders of GLD to unload their shares. This enables the bullion banks to accumulate the amount of shares required to redeem gold from the GLD Trust and ship that gold to Asia in order to meet the enormous delivery demands. For example, in the event described above on January 6th, 14% of GLD’s total volume for the day traded in a 1-minute period starting at 10:14 a.m. The total volume on the day for GLD was almost 35% higher than the average trading volume in GLD over the previous ten trading days.
Before 2013, the amount of gold in the GLD vault was one of the largest stockpiles of gold in the world. The swift decline in GLD’s gold inventory is the most glaring indicator of the growing shortage of physical gold supply that can be delivered to the Asian market and other large physical gold buyers. The more the price of gold is driven down in the Western paper gold market, the higher the demand for physical bullion in Asian markets. In addition, several smaller physical gold ETFs have experienced substantial gold withdrawals. Including the more than 100 tonnes of gold that has disappeared from the Comex vaults in the last year, well over 1,000 tonnes of gold has been removed from the various ETFs and bank custodial vaults in the last year. Furthermore, there is no telling how much gold that is kept in bullion bank private vaults on behalf of wealthy investors has been rehypothecated. All of this gold was removed in order to avoid defaulting on delivery demands being imposed by Asian commercial, investment and sovereign gold buyers.
The Federal Reserve seems to be trapped. The Fed is creating approximately 1,000 billion new US dollars annually in order to support the prices of debt related derivatives on the books of the few banks that have been declared to be “to big to fail” and in order to finance the large federal budget deficit that is now too large to be financed by the recycling of Chinese and OPEC trade surpluses into US Treasury debt. The problem with Quantitative Easing is that the annual creation of an enormous supply of new dollars is raising questions among American and foreign holders of vast amounts of US dollar-denominated financial instruments. They see their dollar holdings being diluted by the creation of new dollars that are not the result of an increase in wealth or GDP and for which there is no demand.
Quantitative Easing is a threat to the dollar’s exchange value. The Federal Reserve, fearful that the falling value of the dollar in terms of gold would spread into the currency markets and depreciate the dollar, decided to employ more extreme methods of gold price manipulation.
When gold hit $1,900, the Federal Reserve panicked. The manipulation of the gold price became more intense. It became more imperative to drive down the price, but the lower price resulted in higher Asian demand for which scant supplies of gold were available to meet.
Having created more paper gold claims than there is gold to satisfy, the Fed has used its dependent bullion banks to loot the gold exchange traded funds (ETFs) of gold in order to avoid default on Asian deliveries. Default would collapse the fractional bullion system that allows the Fed to drive down the gold price and protect the dollar from QE.
What we are witnessing is our central bank pulling out all stops on integrity and lawfulness in order to serve a small handful of banks that financial deregulation allowed to become “too big to fail” at the expense of our economy and our currency. When the Fed runs out of gold to borrow, to rehypothecate, and to loot from ETFs, the Fed will have to abandon QE or the US dollar will collapse and with it Washington’s power to exercise hegemony over the world.
This article was coauthored by Paul Craig Roberts and Dave Kranzler. Dave Kranzler traded high yield bonds for Bankers Trust for a decade. As a co-founder and principal of Golden Returns Capital LLC, he manages the Precious Metals Opportunity Fund.
SL/SL


Dr. Paul Craig Roberts is an American economist who served as an Assistant Secretary of the Treasury in the Reagan Administration and was noted as a co-founder of Reaganomics. He is a former editor and columnist for the Wall Street Journal, Business Week, and Scripps Howard News Service. He has testified before congressional committees on 30 occasions on issues of economic policy. During the 21st century, Roberts has frequently written extensively about the effects of the Bush (and later Obama) administrations related to the War on Terror, which he says have destroyed the US Constitution's protections of Americans' civil liberties, such as habeas corpus and due process. He has taken positions different from former Republican allies, opposing the War on Drugs and the War on Terror, and criticizing Israel's policies and actions against the Palestinians. More articles by Dr. Roberts

Thursday, February 27, 2014

Ukraine: making of a Black Swan?

The Ukraine has the makings of developing into a Black Swan. There is a path of escalation that can easily lead to that.

On one side we have an impotent EU, led by 6 female heads of military activities. Then there is John Kerry and his boss: incompetent novices when it comes to foreign policy. Democrats always drag us into conflict. First, by preaching appeasement until our adversaries push their luck into areas vital to us.

On the other side we have Russia, led by Mr Putin, who is flush from a successful Winter Olympics. Mr Putin has successfully plugged into Russian national pride. The Sochi Olympics was a big step toward fostering Russian nationalistic feeling. The events in the Ukraine play right into Putin's hands. The Ukrainian dissidents want to take the country into the EU, further submerging the Russian component of the Ukraine. A Ukraine that is part of the EU (and NATO) is Russia's nightmare and will not be tolerated. Russia has mobilized its troops on the Ukrainian border, while Russian troops from a nearby base have seized the regional parliament in Sebastopol and raised the Russian flag.

There is much at stake. Russia's oil and gas goes through the Ukraine and any serious interruption may invite American companies to move into Europe. The Ukraine is bankrupt and needs a bailout. Will events escalate to the point of an invasion? That would be a Black Swan with serious economic repercussions.

Does Inovio offering signifies mediocre results?

INO stock has gotten as far as $3.95/share. It backed off a bit and then the Company had announced an exercise of a previously announced public offering. The offering is at $2.90/share, a total of 19M shares plus a few more if the offer is over-subscribed. The offering is expected to bring in $55M minus the costs of selling and discount.

Several question spring to mind:

1. Why 2.90? If the results from the current study are good, why not ask for 3.50? Sure, it would signal that the Company believes the results are good.

2. Does the $2.90 mean that the results are iffy? Not necessarily.

3. Is this dilution necessary? The stated reasons for the offering are general corporate purposes and operating costs (believable), starting new studies (believable) or corporate acquisitions (not believable). The fact that this offering was previously announced indicates that it is not suddenly thought up to dampen speculation in the stock. The strike price seems a bit low and the stock is trading above that. The public does not believe that the stock will head much further South - at least not in the near future.

We have to wait for the results. The question remains whether the treatment gooses up the T cells. I suppose that the 'further studies' will tell us what the experts think of the results of the current study. If there is a decent T cell increase in the current study, it would make sense to start other studies where T cell response is crucial. If the T cell response is so so, then the 'further studies' will aim at studying an immune response.

Can't speculate any further than that.

Tuesday, February 25, 2014

Inovio: What's the scoop?

Inovio stock is going bananas: traded 20M Friday and 32M yesterday. It is up 25% in two trading days and may be up again today. There is probably a goodly amount of daytrader activity as well. A good way of understanding what the company is about is to read the interview with CEO Dr Kim:

http://seekingalpha.com/article/2032351-the-real-inovio-pharmaceuticals-an-interview-with-dr-j-joseph-kim-ceo

Inovio is not the only company that is using the immune response as a way to fight cancer, but it has one ace in the hole: electroporation. This allows the introduction of purer antigens and a better immune response. We will soon be able to gauge the results of the first study. If the study shows a strong immune response (i.e. lots of antibodies against the papillary virus) then the vaccine can be said to be effective against the virus. But, if the treatment results in increased killer T cells, the sky is the limit. Those cells can remove cancer cells!

This is the issue: if Inovio's vaccine can prevent certain cancers, that is very valuable. But, if the treatment can stimulate killer T cell response and remove cancerous cells, that is another ball game.
Biotechs such as Inovio fail, because they either run out of money or their product is not approved by the FDA, because it does not work.

Here is another interview with Dr Kim. It explains the immunotherapies being contemplated or actually starting.

http://seekingalpha.com/article/1909711-inovio-ceo-interview-pd1-pdl1-inhibitors-immunotherapy-and-why-investors-should-be-excited-about-2014

Sochi: A kinder and gentler Russia?

The Winter Olympics in Sochi are over. As we tote up the outcome, we must conclude that it was a resounding success for Russia. For the new Russia. Which is a continuation of old Russia. Vladimir Putin has accomplished what seemed impossible but a few years ago: Aggiornamento (updating) and Perestroika (restructuring). Nothing symbolizes this more than the new Russian National Anthem, which is the old National Anthem with new words.


If you watched the opening and the closing ceremony, you saw the re-emergence of Russian art (ballet and literature), not the Stalinist show of tanks, missiles and goose-stepping military. It was a kinder and gentler Russia. NOT a kind and gentle Russia.


The Gulags are gone, but Russia is not a Western style democracy. The sex perverts do not control the Press and the arts in Russia. That is why the Western Press sniped at the Olympics from beginning to end. In the end the Jihadists failed to disrupt things. Neither did the members of the gay lobby. In the end, the Russians even reasserted their dominance in figure skating and cross country skiing.


Putin's Russia is moving to reassemble the Russian part of the old Soviet Union. If American Liberals believe that Russia will abandon large Russian populations in Belorussia and the Ukraine, like England abandoned its nationals across the world, they are in for a surprise. Russia is kinder and gentler, but not kind and gentle. An important distinction.


IMHO, President Putin will go down in Russia's history as another Peter the Great. A man who repositioned Russia and reasserted its importance.

Monday, February 24, 2014

What Black Swan?

What is a Black Swan?

It is an event that is a) unexpected in the specifics and b) turns out far more important than originally believed.

Can we predict when it will occur? NO!.

Can we predict what it will be? In general terms, YES. It will be an event that will destroy the confidence in the US Dollar.

What will set off this event? Take your pick. A reversal of tapering? A general selloff of US Treasuries? A large increase in interest rates? Or a resumption of the Cold War?

Incidentally,   Larry reiterated his judgment of the PM market (a bear market rally). Just in case you wondered how come PMs were up today.

Saturday, February 22, 2014

Investment lessons from Inovio.

It was believed at one time that the "genome" (the total sequence of all our proteins) would give us an insight into  cancer and other genetic diseases. Much has been learned along the way, both in terms of science and also investing. Here are some of what we learned:

1. The human genome contains some 25,000 genes (each gene codes for a protein), but there are many other factors that determine the final individual.

2. There are too many genes that are associated with cancer. Hard to pick one to blame.

3, Cancer cells become 'immortal' and do dot undergo cell death(apoptosis) as normal cells do. A novel anti-cancer drug promised a cure by restoring normal cell death. Aptosin would inhibit the breakdown of cyclic GMP and this would allow cancer cells to die. It worked in tissue culture and mice. Unfortunately, it did not work in humans.

And here we come to Inovio and its proposed cancer cures. Inovio is working on cures where the cause of cancer is a virus. They inject pure viral DNA by electroporation. A small current makes the skin permeable to the DNA without having to use a needle. Inovio is targeting cervical cancer that is caused by the papillary virus. The first study ( a proof of concept study) used 18 subjects. All eighteen developed a response against the virus and 14 had increased T cells. A larger study is under way and we should have results within a month, maybe two. The stock has been on a tear and last Friday it traded 20M and was up 11%. Do some people know something or just guessing?

The Company is funded till 2016. The downside? The FDA says NO. Or, the FDA requires a large study that may last too long.

Gold and Silver: Testing former resistance.

One of the axioms of Technical Analysis is that once a resistance is broken through, the former resistance becomes a new support level. And one of the more significant breakthroughs is the breeching of the 200 DMA. So, here is an early test of the breakthrough of the 200 DMA for Gold and Silver.




And here is the test for Silver:



In the case of Gold, the 200 DMA was tested and the price bounced off the 200 DMA. In the case of Silver, the test occurred above the 200 DMA. These early tests suggest that PM prices will continue to rise, especially silver.

Zinc is also forecast to rise. Since, silver miners also produce Zinc, such stocks will rise even faster.

Monday, February 17, 2014

And what about the silver miners?

I follow three silver miners. Here is the graph of their behavior:





The top graph is Great Panther. It has been in a "sucker rally" since January. This last Friday, it advanced 20% on nearly 3M shares. It has roughly doubled since its low point.

The second graph is IPT.V or ISVLF. The stock shows a double bottom then breaks out in January. This stock has corrected severely on the news that the company would shut down the silver mining operation at the Capire site and process a copper/gold mix instead. Those in the know pulled up the trucks and loaded up last Friday.

The last graph is FSM, (Fortuna Silver Mine). Note that this is a weekly chart and plotted on a straight number scale (rather that logarithmic). Here we see a triple bottom before the stock broke out on the Upside and began to rally at the end of last December. Interestingly, the stock rallied in 2012, but that rally was quickly squashed. The rally in 2012 was about 2.5 as is the current rally. Note also that the 50 DMA crossed below the 200 DMA between the two double bottoms and that the 50 DMA is beginning its upturn.

I can only pass on the quote from KWN: if you endured the pain, enjoy the gain.

Sunday, February 16, 2014

Silver's Impressive Breakout.

Silver is nearing the $22/oz level as I write this post. Furthermore, the reported volume is increasing and the price is threatening to become parabolic.



Silver miners have already been increasing, some as much as 50%.

Unlike in the case of gold (where vaulted gold could be rehypotheticated), there is little reserve supply of silver. Thus, prices should increase until there is an equilibrium between supply and demand.

Saturday, February 15, 2014

The Sochi Olympics.

Apologies for commenting on the Olympics after a week went by. I was preoccupied with the rally in Precious Metals.

After the Summer Olympics in Beijing, it was hard to believe that a nation could put on an opening spectacle with such artistic merit and impact on redefining its identity. But, the Russians did it. First, the buildings at the Olympic site were magnificent. The gigantic sports stadium with its technology is even more up to date than the one in Beijing.

Then there was the opening ceremony. Recapitulating Russia's past is not an easy task - more like making lemonade. But it was done and done well.

Still, the carping from the Press was persistent if ineffective. complaining about the hotel rooms not being ready, bad water, guests having to give up their pillows for the athletes.  Then the 'glitch' of one flower petal not morphing into an Olympic ring, it sounded like a mistake made by a Republican during the debates. What got the Press riled up and put them into the outrage mode? Well, it was the Russian laws restricting homosexual propaganda. The Western Press (chained dogs of the lavender lobby)kept howling untill their voices were drowned out by the spectacle of the events themselves.

Congratulations are due to Russia and Mr Putin for their tireless efforts for putting on this event. Just as it was time for China to present to the world their artistic face at the Summer Olympics, it was time for Russia to do the same at the Winter Olympics.

Friday, February 14, 2014

Larry: Gold in a sucker rally?

Finally, Blogger let me upload a graphic for gold.

There are three points of interests here: 1. Gold has continued to trade above the 50 DMA, 2. Gold has closed above the 200 DMA and 3. The rally is not happening over large volumes. In other words, this is NOT a short squeeze. What is it?

The second graph is the Gold Miner Index. It is very similar to the Gold chart. Both. Gold and the Gold Miner Index began to rally after the first of the year and after the charts described a double bottom (more noticeable with Gold). Both charts behave as a regular rally with occasional dips along the way. Gold is yet to reach 1,360, which will confirm the rally, but GDX has closed above 26, which does confirm the rally in Gold Miners.

What to make of Larry's statement that this is a sucker rally? Larry still believes in his models and refuses to see the facts. He was just as adamant that the DOW would fall below 9,500, before he invoked some magic "Inversion" and gave up on the idea of the DOW crashing.

Will he be just as wrong about the rally in PMs? Only time will tell. But, I would not short gold at this point and quit looking for gold at $900/oz. In fact, Larry lapses into incoherence when he predicts that his followers will be able to buy gold at 1,200 and see gold go to 900.

Thursday, February 13, 2014

Are we there yet?

That was the question voiced by the Donkey character in Shrek 2 as Shrek, his wife and the Donkey were traveling to the Kingdom of Far Away.

It is the question that we ponder as gold blasted past 1,270/oz. Are we back to the Bull Market in commodities especially Gold and Silver? Are we there yet? Let's look at the numbers.



Unfortunately, Blogger is on the fritz, so I don't know if I will be able to upload the two graphics that I will reference. The first graphic is Gold. It had not only went past 1,270, but continued up to 1,295. Then it stopped and went below 1,290. There it sits this morning. So, the new resistance is between 1,290 and 1,299. Here are the resistance points for Gold: 1,306; 1,362; 1,434; 1,650 and1,700. GDX (the Gold Miner Index) has also been rallying. It went past its 200 DMA then dipped below. Here are the resistance points for Silver: 20.60; 22.2; 23.08; 25.10 and above 30. Will the FED allow PM's to rise? I don't know. If the FED worries about deflation, that problem can be solved by allowing the PMs to rise.

Monday, February 10, 2014

Gold slips past 1,270 resistance.

Having gone to the edge of 1,270/oz (only to retreat each time), gold slipped past the mark and was trading at 1,283 for a while. Will it continue advancing? Depends. At this point, physical gold is in short supply and gold prices are kept artificially low.

Economic news is bad. China's growth is down to 5-6% from the lofty number of 9-10.0%. Emerging markets are a shambles and currencies have sold off. Wages are stagnant in the US and our Stock Market is valued at over 100% of the GDP (traditionally it is 50%). Good money can be made in the precious metals and miners.

Friday, February 7, 2014

Puerto Rico: follow up to a Nov 4 (2013) post.

Standard and Poor just downgraded Puerto Rico's Munis from BBB- to BB+. This means that these bonds will continue to shrink in value and so will the investment companies that bought them. PR will have to deposit $1B as collateral.

Across the US, Cities and States with Democrats at the helm of leadership are experiencing financial difficulties. Detroit is officially bankrupt and a number of other cities are considering a similar step. Chicago needs $900 Million, but its loans are structured to cut in some years in the future. Chicago is bankrupt and no one in his right mind will invest in Chicago's bonds. California is reeling under the twin disasters of drought and Gov Jerry (Moonbeam) Brown and his spending plans. Democrats just can not make themselves adopt a reasonable spending plan.

Tuesday, February 4, 2014

The new oil boom in Texas.


My wife and I drove past Midland, TX on I20. It is beautiful, dotted with oil wells, the symbol of God's gift to Texas. It was May 28, 1923 at 6 AM when the well known as Santa Rita #1 blew and spewed crude oil around. It ushered in an era of plenty for West Texas and propelled the US  into the age of oil.
 God's gift to Texas made it possible for the State to build some magnificent highways, a system of lakes and water sources in East Texas and have no Income Tax. The oil wells aged and so the Country had to buy oil from people who hate us (Muslims) at exorbitant prices.  But, another age of oil is coming, ushered in by new methods of drilling and extracting. The oil boom is taking place on private lands so it can not be stopped by the accursed EPA and our oil-hating President.
     
    North Dakota, Pennsylvania and Southern Texas have each a layer of shale oil that is being reached by new drilling methods and frakking. But, their resources are dwarfed by the oil discovered in West Texas in an area called the Petroplex.
     It is difficult to figure out how much oil lies below the surface. The oil formed in a "feeding rock" layer, which then squeezed it out into pools. The Santa Rita and other wells were the result of tapping this single layer of oil.

    Geologists discovered that the Petroplex contains not one, but several feeder rock layers and shale oils. It looks like this:


    The amount of oil contained in these layers literally boggles the mind. As an example, DEVON Energy owns a prime area of 9,800 square miles. They have reported that each square mile contains 3 Million barrels of oil and it is all recoverable, for a total of thirty TRILLION barrels of oil. There are 400 drills heading to West Texas and there is so much oil being produced that the infrastructure can barely handle it. If we can keep Obama and his EPA from throwing a monkey wrench into the operation, the US will not need another drop of foreign oil and in fact we will be exporting oil till the cows come home.
 
 

Economy, manufacturing slows in January.

Manufacturing growth nearly stalled in January while auto sales reversed, the latest in a series of weaker-than-expected economic reports. Stocks sold off hard Monday.

The Institute for Supply Management's January manufacturing index shed 5.2 points to 51.3, its lowest since May and far below forecasts, though still above the neutral 50 level.
Many respondents blamed winter weather, but key details were grim too. The new orders gauge fell 13.2 points to 51.2, the worst monthly drop in decades. Backlogs sank to a reading of 48, in con traction territory, suggesting that manufacturers lacked sufficient new business to keep busy.

Auto output has helped lead manufacturing's recovery. But car and truck sales generally disappointed in January. General Motors (GM) said Monday that U.S. sales fell 12% vs. a year earlier. Ford (F) and Toyota (TM) also reported big drops, though Chrysler and Nissan (NSANY) enjoyed solid gains.

Contrarian investing. Lessons for us.

There is some confusion as to what the term means. It DOES NOT mean that buy when there is blood in the street or when the Market is going down.

The term "Contrarian Investing" refers to using the ratio of Bulls/Bears to call Market tops and bottoms. The ratio refers to Investment Advisors. This does not mean that Investment Advisors are dumb. There is an entirely legit explanation why this ratio works.

HERE IS THE EXPLANATION.
When the ratio of Bullish vs Bearish Advisors reaches a certain level, that means that they and their clients are invested and they can not push the averages any higher. Conversely, when the percent of bullish  Advisors drops below  25%, a Market upturn is coming. Why? Because the Sellers have sold and are sitting on cash. Here is a graphical proof:


So, where are we as far as the ratio is concerned? The bullish reading is down to 32%, down from 55% in December. Not far from 25%. In Larry's prognostication, we will see an upturn toward the end of February. Then we will see a rally in March. However, in order for the rally to last, we need the FED to open the spigots of the money flow. Supposedly, that is not going to happen while the FED is playing TAPERING.

So, will the FED stay the tapering course? Judging by the effects of tapering $20B/month, it is doubtful that the FED will stand by while world stock markets and currencies implode. We should know by mid year. Which is Larry's prediction for the end of the Bear (Aug-Sep).

This is NOT investment advice. Just my interpretation of what I read.

Seahawk success due to cheating?

The Mail reports that Seattle had decoded Manning's signals so they knew what plays were coming:

http://www.dailymail.co.uk/news/article-2551566/Seahawks-star-Richard-Sherman-says-cracked-Peyton-Mannings-hand-signal-code-Super-Bowl-able-predict-play.html

Seattle made it to the Super Bowl by shouting down the 49ers and apparently cheated in the Super Bowl. Thus, Seattle did in sports what they do in politics: cheat.

Monday, February 3, 2014

Celente: a second opinion.

In the world of diagnostics, patients often get a second opinion. Such is the latest post from Celente on KWN. While Larry predicts that the Stock Market will end its slide in Aug-Sep, Celente predicts that the entire Ponzi scheme of stock gains will collapse. It will be interesting to see who is right.

The not-so-super Super Bowl.

I do not root for any football team though I watched the playoffs. Of more interest to me is the 85% correlation between who wins the Super Bowl and DOW performance. If the NFL wins it means an up year and if the AFL wins, it will be a down year.

There was no question about the outcome of the game, though the game will be analyzed and speculated about for a while.  Why was the Offensive Line of the Broncos so inept? Why were the Officials letting the Seahawks bump and hold the Denver Pass Receivers? IMO that was the determinant in the game. The Pass Receivers just could not get downfield far enough.

Sometimes it looked as if the Broncos were drugged. I have seen them play away from Denver and I have never seen them play as badly. Well, there will be theories.

I the meantime, the DOW is plunging. Overseas stock markets are lower and the economy is weakening. How long before the FED changes its mind and stops the tapering?

Sunday, February 2, 2014

Environmentalists wage war on Pebble Project.

There is not a proposed mine or a development that is not opposed by the Environmentalists. Most of the Enviros are Liberals, so their modus operandi is that ANYTHING GOES. I serve up the pressure to stop the Pebble Mine as an example.

First, the Enviros try to make a project unfeasible by endless litigation and scaring off prospective financiers and partners. Second, the Enviros try to create an atmosphere poisoned for the project. They try to prevent an objective analysis of the proposed project and try to enlist people who react emotionally. And of course, Enviros are not hesitant to distort and lie.

In the case of the Pebble Project, the Enviroes scared off the Mitsubichi Corporation, the Anglo American Corporation and recently Rio Tinto, all before there was an official plan of operations by Northern Dynasty, or an official hearing.

The Enviros contend in a letter (sent out by the Natural Resources Defense Council) that the Pebble Project would be built in Bristol Bay and threaten salmon spawning areas. The Enviros are not shy in stretching the truth: the mine is proposed to be built 60 miles from Cook Inlet, entirely on State land that is zoned for mining.

http://www.northerndynastyminerals.com/ndm/Home.asp

The Pebble Project is a world class resource of copper, gold and tungsten and it would provide 15,000 jobs over decades.

Saturday, February 1, 2014

Barak's new plan to dip into your earnings.

Republicans have managed to head off most of the plans by the Democrats to raise taxes. The Dems are always trying for more revenues to finance the ever increasing appetite of the govt to spend money to buy votes. Doug Casey describes the latest attempt. This is a stealth tax, disguised as an "IRA" where the worker "invests" part of his earnings in Treasuries. But, let Doug Casey tell his story.


I'm talking about his[i.e. Barak Hussein's] unveiling of the "MyRA," which is ostensibly a new retirement account for working-class Americans. Sounds innocent enough.

But read a little closer, and… well, rather than put words in his mouth, let's let the skilled orator tell us about the MyRA himself, word for word from his State of the Union address.

Take it away, Barack. (His words, verbatim, are in bold.)

"Let's do more to help Americans save for retirement. Today, most workers don't have a pension. A Social Security check often isn't enough on its own."

Can't argue with that. The personal savings rate has been declining since the 1970s. Reversing that trend would help get America back on track to prosperity. Tell me more.

"And while the stock market has doubled over the last five years, that doesn't help folks who don't have 401(k)s."

Good point. It's hard for lower-income earners to save enough money to invest in the stock market. Helping them access stocks is a great idea, provided they enlist a competent advisor.

Granted, it's not a perfect solution. But allocating a portion of one's savings to stocks is smart—certainly better than allowing inflation to bleed one's savings account to death.

"That's why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA."

Actually, Mr. President, working Americans already have access to IRAs. You're giving the impression that lower-income Americans don't have access to tax-advantaged retirement accounts, but that's not true at all. Even if my employer doesn't sponsor a plan, I can start one on my own. Anyone under the age of 70½ can open a self-directed IRA, and plenty of brokers allow people to enroll with as little as a $500 initial contribution.

So where are you going with this?

"It's a new savings bond that encourages folks to build a nest egg."

Whoa, hang on there. You were just talking about the stock market. How do savings bonds help the average Joe tap into stocks?

"MyRA guarantees a decent return with no risk of losing what you put in."

Stop it. First of all, bonds neither guarantee a decent return nor protect people from losing their principal. In fact, with interest rates still near historic lows, buying bonds today and holding them for the long term virtually guarantees they'll lose money.

Second, a bond is not a one-sided transaction. Whoever issues the bond is borrowing money from the buyer. The US government would be issuing these bonds, so that would mean… wait a minute, you wouldn't be trying to covertly confiscate workers' earnings to fund the government, would you?

"And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans."

Don't change the subject, Mr. President. Do you expect me to believe it's just a coincidence that your new plan will finance billions of dollars in US debt, just as your pal Bernanke is finally reducing the Fed's QE bond purchases? You guys are too much.

"Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can."

Automatic? Now you're really starting to scare me. I hope that means the payroll deductions would be automatic for participants, and not that everyone at certain income levels will be automatically enrolled in MyRAs unless they proactively opt out. Forgive me for being suspicious.

Regardless, let me see if I have this scheme straight. If someone is lucky enough to be a MyRA participant, the government will skim a percentage of his income from his paycheck. In exchange, it will issue him an IOU, which of course won't pay out until he retires. So working-class Americans would effectively be giving the government a long-term loan.

Taking money from our paychecks before we ever see it… promising to pay us back in umpteen years… this all sounds eerily familiar. Where have I heard of this arrangement before?

Oh, right. It's exactly the same as Social Security. Minus the compulsory aspect (for now).

I'm not trying to be sensationalist; it's all right there in Obama's language. As I write on Thursday morning, more details are leaking out. According to several sources, the MyRA will essentially be a Roth IRA, with one huge difference: it can only invest in government savings bonds.


Given that a normal Roth can already invest in government bonds, I fail to see how a MyRA offers any advantage whatsoever. All it does is restrict participants' investment choices to the one asset class that most benefits the bankrupt US: US debt.

And that seems to be the point. US retirement accounts hold well over $5 trillion in assets. The US government owes a mind-boggling $17+ trillion in debt. You can almost hear Uncle Sam salivate. The MyRA looks like the first baby step toward acclimating people to the idea that retirement savings are too important to entrust 100% to the market. Government bonds, you see, are much safer.

If the government can pass a mandate that IRAs must allocate just 10% of their assets to Treasuries, a cool $500 billion would flow straight into Washington's coffers. Not enough to solve its debt problems—there isn't enough money in the world to do that. But enough to stave off bankruptcy or a crisis of confidence in the dollar for a few more years.

What to do? Liquidating your IRA isn't an option, since you'd incur hefty penalties and lose all of the substantial tax benefits they offer. For now, keep an eye on how the MyRA saga unfolds. Watch especially for any strong-arming by the government, such as forcing employers to offer MyRAs. Or, as I mentioned above, automatically enrolling some subset of the population into the MyRA program. Such actions would provide clues as to how much the government thinks it can get away with.

You also might want to learn a bit about past confiscations of retirement savings. They're more common than you'd think. Just since 2008, the governments of Argentina, Poland, Portugal, Ireland, Hungary, and Bolivia have all pillaged citizens' private retirement assets in some fashion.

Of course, your #1 recourse against any grabby government is to hold a substantial portion of your savings in physical precious metals. Though the past two years have been a rough ride, history unequivocally shows that gold is unrivaled in its ability to hold value over the long term. And what's more, evidence is mounting that gold's decline is coming to an end—for both the metal and the miners.