After a dreary winter, the long overdue spring has arrived for the gold and silver markets. Battles were fought for the past two days over options and futures expiration, and the Gold Cartel could not defend $950 or even $960. Silver poked its nose above $15, and then went through it today. The silver open interest is barely 100,000, so there is plenty of room for that to expand, and it looks like the speculative longs are willing to take on JP Morgan and HSBC at these levels.
For Silver Standard, this couldn't have come at a better time, as they are about to sell the first silver concentrate from their Pirquitas mine. Things did not look nearly as good six months ago when silver was lanquishing around $9, but Pirquitas will be an amazingly robust project with silver at $15+.
I doubt that this signals the death knell of the Gold Cartel, but it is more proof that they are on the wrong side of history. The distortions in the silver and gold markets are growing, and it is becoming progressively harder for the bad guys to keep a lid on things. Ultimately, this will end with a failure on the COMEX. One of these months, someone won't be able to deliver silver bullion, and will be forced to settle in cash.
It looked like this scenario would occur last year, but the hedge fund deleveraging that began in July raised the specter of a deflationary crash, if not the collapse of the entire global financial system. This time around, we have massive amounts of money being printed all over the world, and the game is up. Silver is no longer an industrial metal, and industry supply and demand figures are meaningless. Silver is now a monetary metal, and investment demand will drive the price of silver. It does not matter how many new silver mines come on stream, as depreciating paper currencies will spur investor demand for physical silver bullion.
The story in gold is much the same. China will buy all the gold the Western central bankers are willing to sell, and then some. Best of all, the mining equities are leading the precious metals, and providing leverage to metals prices, as they should. As the saying goes, get in, sit down, shut up, and hang on!
Confession of guilty pleasure: I enjoy watching Britain's Got Talent. In fact, I have gone so far as to watch BGT every day this week. Well, one day it wasn't on, having been preempted by some soccer game or something, but every other day this week. That's not easy to do since it isn't televised in America. But the performances are being posted on YouTube. First, I find out from my news reader which acts made it into the next round. Since I used to be an air traffic controller, I understand Zulu time, and can easily translate to my local time. See, I knew those twenty years in ATC would come in handy one of these days.
Later on, the performances are posted on YouTube, and still later in the day, the judges' comments. The talent level ranges from amazing to awful, and everything in between. For instance, there's this fat Greek guy and his 12-year old son who run around on the stage and pretend like they're dancing. Don't laugh, they just made it into the finals. But the star of the show is a dumpy, plain-looking 48-year old woman from a small village in Scotland. She's never accomplished anything in her life, but she just happens to have an amazing singing voice. Among her competition is a 10-year old girl who also can sing, and will one day be a star. Then there's a guy who plays, of all things, a saxophone, but he's really good. It's like watching a soap opera, but these are real people chasing a dream, and it really is compelling theater.
Here's a parody of two of the main contenders, Susan Boyle and Hollie Steel:
http://www.youtube.com/watch?v=a7qXYpc3bDs
Thursday, May 28, 2009
Saturday, May 23, 2009
First Japan, the the UK, then the US?
Japan, the second largest economy in the world, just lost the AAA rating on its government bonds. Standard and Poor just said the United Kingdom may lose its AAA rating in the near future. They didn't mention the United States (yet) but the yield on the 10-year note has recently risen from 2% to almost 3.5%. That is not a ringing vote of confidence. Bear in mind that this outfit (S&P) gave its AAA rating to mortgage-backed securities that now sell for 10 cents on the dollar.
This information finally seems to be getting through to the financial markets. Since March (the day the Fed announced quantitative easing) the precious metals and mining stocks have roared ahead against all currencies, but especially against the US Dollar. As I write this, gold is at $956 and silver at $14.69, as both have rallied sharply. However, the commitment of traders has deteriorated, and the technical wizards say the metals are overbought, which means at some point JP Morgan will pull its bids and try to engineer another sell off in silver and gold. That is inevitable, but another piece of news just surfaced.
The Bank for International Settlements just issued its semi-annual report, indicating that gold derivatives declined sharply, from $649 billion to $395 billion, or roughly 40%. I take this to mean the shorts are finally starting to cover. That is a decline of 7600 tons, or close to three years of production. If I had to guess, I would say we will see $1200 gold this year, and I expect the gold/silver ratio to decline, so silver should outperform gold for the rest of the year.
This information finally seems to be getting through to the financial markets. Since March (the day the Fed announced quantitative easing) the precious metals and mining stocks have roared ahead against all currencies, but especially against the US Dollar. As I write this, gold is at $956 and silver at $14.69, as both have rallied sharply. However, the commitment of traders has deteriorated, and the technical wizards say the metals are overbought, which means at some point JP Morgan will pull its bids and try to engineer another sell off in silver and gold. That is inevitable, but another piece of news just surfaced.
The Bank for International Settlements just issued its semi-annual report, indicating that gold derivatives declined sharply, from $649 billion to $395 billion, or roughly 40%. I take this to mean the shorts are finally starting to cover. That is a decline of 7600 tons, or close to three years of production. If I had to guess, I would say we will see $1200 gold this year, and I expect the gold/silver ratio to decline, so silver should outperform gold for the rest of the year.
Sunday, May 10, 2009
Don't ever be an executor!
Once again, I have been remiss in updating this blog, but there have been circumstances beyond my control. The fates have decreed that I am the executor of my parents' estate, and lately I have been busier than a one-legged asskicker. At first I spent most of my time dealing with doctors, nurses, hospitals and insurance companies. Now I spend most of my time dealing with bankers, lawyers, brokers, and investment companies, in addition to some of the above.
Oddly enough, the easiest people to work with have been my probate attorney and the Department of Motor Vehicles. I never would have guessed. Until I engaged the attorney, I usually had to do everything three times to get it done, if I was lucky. Sometimes, my efforts were completely ignored. It seems in the legal world there is only one way to do things, and everything takes four to six weeks, and everything isn't perfect, it gets kicked back to me.
The lawyer knows what to do, and provides me with the Declaration of This, and the Affidavits of This, That, and The Other Thing needed to get things done. As far as the DMV is concerned, there are streamlined procedures, and only one way to do anything. But if you do things their way, and fill out their form, everything gets accomplished in a fast and efficient manner (once you've waited in line for 25 minutes.)
So if anyone ever asks you to be an executor, just decline politely. Tell them you're too busy (and believe me, you will be.) It doesn't matter what the fee is, or if you have experience in the business, or you're good with money. It isn't worth it. I feel like I'm an executive. At any given time, I am juggling ten or twelve things, having delegated tasks to people, and hoping they get them done. After a certain amount of time, I have to follow up with each of them just to make sure they're actually doing something. (What? What form? Oh, no! You were supposed to send us Form XYZ-23. We can't do anything without that.) Then why didn't you tell me that, you stupid &*%$#@!?
Speaking of business, I just saw the finale of the Celebrity Apprentice. Donald (the idiot) Trump just picked Joan Rivers over Annie Duke, which is the dumbest business decision I have seen since New Coke. All I can say is that I have seen the first eight seasons of The Apprentice, but I won't be watching the ninth one. You can't reward nasty, abusive people at the expense of a competent professional, and expect to maintain my interest.
Last of all, my comment on the financial markets. More and more, it is looking like the 1970's again, not the 1930's. Massive global financial stimulus is finally having an effect, and we are seeing that in uptrends in commodities and the Baltic Dry Freight Index. However, the recent run in the broad stock market that has taken the Dow up 2000 points is a mirage. To put it bluntly, it is a sucker rally, nothing more than a bear market rally.
The large banks are still insolvent, and no matter what the stress tests say, they should all be bankrupt. Further, the American consumer is tapped out, and predictions of GDP growth are hopelessly optimistic. When the economic improvement comes, it will be led by China, India and Brazil, not the United States.
We're already starting to see a breakdown in the US Dollar, with the $C up to 87 cents, and 10-year T-Bond yields up to 3.3%. Resource stocks will do very well in this environment. Gold, silver, oil, and gas in particular, but once inflation starts to show up later this year, the soft commodities and even base metals will do well. The only remaining caveat for mining shares is that when the rally in the broad stock market fizzles out, will the gold stocks act like gold or like stocks? It is possible that mining stocks could sell off with everything else, but if they do, that will present one last buying opportunity before gold and silver move up sharply. More likely, the lows for mining shares are already in.
Oddly enough, the easiest people to work with have been my probate attorney and the Department of Motor Vehicles. I never would have guessed. Until I engaged the attorney, I usually had to do everything three times to get it done, if I was lucky. Sometimes, my efforts were completely ignored. It seems in the legal world there is only one way to do things, and everything takes four to six weeks, and everything isn't perfect, it gets kicked back to me.
The lawyer knows what to do, and provides me with the Declaration of This, and the Affidavits of This, That, and The Other Thing needed to get things done. As far as the DMV is concerned, there are streamlined procedures, and only one way to do anything. But if you do things their way, and fill out their form, everything gets accomplished in a fast and efficient manner (once you've waited in line for 25 minutes.)
So if anyone ever asks you to be an executor, just decline politely. Tell them you're too busy (and believe me, you will be.) It doesn't matter what the fee is, or if you have experience in the business, or you're good with money. It isn't worth it. I feel like I'm an executive. At any given time, I am juggling ten or twelve things, having delegated tasks to people, and hoping they get them done. After a certain amount of time, I have to follow up with each of them just to make sure they're actually doing something. (What? What form? Oh, no! You were supposed to send us Form XYZ-23. We can't do anything without that.) Then why didn't you tell me that, you stupid &*%$#@!?
Speaking of business, I just saw the finale of the Celebrity Apprentice. Donald (the idiot) Trump just picked Joan Rivers over Annie Duke, which is the dumbest business decision I have seen since New Coke. All I can say is that I have seen the first eight seasons of The Apprentice, but I won't be watching the ninth one. You can't reward nasty, abusive people at the expense of a competent professional, and expect to maintain my interest.
Last of all, my comment on the financial markets. More and more, it is looking like the 1970's again, not the 1930's. Massive global financial stimulus is finally having an effect, and we are seeing that in uptrends in commodities and the Baltic Dry Freight Index. However, the recent run in the broad stock market that has taken the Dow up 2000 points is a mirage. To put it bluntly, it is a sucker rally, nothing more than a bear market rally.
The large banks are still insolvent, and no matter what the stress tests say, they should all be bankrupt. Further, the American consumer is tapped out, and predictions of GDP growth are hopelessly optimistic. When the economic improvement comes, it will be led by China, India and Brazil, not the United States.
We're already starting to see a breakdown in the US Dollar, with the $C up to 87 cents, and 10-year T-Bond yields up to 3.3%. Resource stocks will do very well in this environment. Gold, silver, oil, and gas in particular, but once inflation starts to show up later this year, the soft commodities and even base metals will do well. The only remaining caveat for mining shares is that when the rally in the broad stock market fizzles out, will the gold stocks act like gold or like stocks? It is possible that mining stocks could sell off with everything else, but if they do, that will present one last buying opportunity before gold and silver move up sharply. More likely, the lows for mining shares are already in.
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