"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Wednesday, May 4, 2011

Trader Dan interviewed at King World News

Eric King over at King World News was kind enough to interview me this afternoon for some of my thoughts on the metals markets and the shares.

You can find the written interview here.

We will be doing the usual Friday afternoon Metals Wrap later this week as usual.


GroundHog Day for Silver - AGAIN

This seems to be a pattern much like the movie starring Bill Murray where he gets trapped in a day which keeps repeating itself until he gets it right. With the Comex however it seems to be a matter of seeing how many small specs (and even some larger ones) they can take out of the silver market so as to make certain that the perma shorts (which by the way are voting members at the exchange) can recoup the entirety of their paper losses they suffered as silver roared higher from down near $26 back in January of this year.

For the second time in a week, and for the FOURTH time in two weeks, the exchange is once again hiking margin requirements for trading silver. Actually, it will be FIVE Times in less than 3 weeks with Monday's hike.

This time it advances to $18,900 from the current $16,200 effective as of the close of business tomorrow or Thursday. Maintenance margin jumps to $14,000 from $12,000. Hedgers are facing an increase as well but it is to maintenance margin levels.

If that were not enough, then come Monday the margin rate gets hiked AGAIN, jumping to $21,600 with a new maintenance margin of $16,000. At current silver values, that amounts to more than 10% of the total value of a single silver futures contract if you want to play.

Obviously this is going to produce even more volatility as the small specs exit the market, most of them being unable to afford to trade it except for all but the specs with the deepest of pockets. A lot of the small guys are probably already wrung out but those who might have been long from lower levels and were unaffected by the margin hike due to the paper profits they might have from being long at a lower level could be at risk if this market continues dropping.

This is ostensibly designed to protect the integrity of the clearing houses as well as giving some brokers the cover they need to hike margins on their clients to protect their own firms in the event of trades gone sour. Keep in mind that these are MINIMUM MARGIN REQUIREMENTS. Brokers are free to set customer margins wherever they wish as long as they meet minimum. That means they could go to $25,000 or even $30,000 per contract if that is what their firm feels more comfortable with.

I suspect however that there is more here than keeping the integrity of the clearing houses. It is too much too fast given the already steep decline in the market. It smells like a deliberate effort is being orchestrated to take the metal lower and rescue the shorts who as I said previously, are voting members of the exchange and who could no longer handle the bleeding of their accounts.

Nothing like transparency and free markets....

HUI showing some promise of being sold out

Depending on how this thing closes this afternoon, it might be sold out. Need to watch and see. A positive close would be friendly and would probably cement a bottom in the shares at least.

Gold - 8 Hour chart update

Crude oil will not fall apart (yet)

I find it ironic that on a day in which the overall commodity sector is getting slammed lower, crude oil simply refuses to fall apart. It is indeed lower but gives no chart signal as of yet that it has topped out. This is the ONE MARKET that the monetary officials are the most concerned about since it is the most visible one for impacting consumer disposable income.

WE had a report out today from the EIA (Energy Information Agency) that stated total US daily oil demand dropped 6.4% last week to a 17 month low of 18.3 million barrels. Included in their classification are even the minor products as well as gasoline, jet fuel and heating oil and diesel.

That is the biggest fall in a year. The soaring prices are indeed choking off demand but unlike the metals, crude has not fallen apart and broken down through its chart support levels.

We will need to watch this to see if it too eventually succumbs to hedge fund selling. Consumers of course would dearly love to see it fall as would the monetary authorities.

A Measure of the RISK TRADE

Chatter is surfacing that some guys are looking for a sharp reversal in the Dollar and some, in anticipation of that, are lifting risk trades. This might help explain the loss of money flows into the overall commodity sector.

Note the sharp fall in the ratio as evidence that money is rushing out of silver and into the bond market.

I suspect that the monetary authorities are strongly welcoming this especially in light of their announcement of an end to QE2 in June. I am of the opinion that once the bond buying program does end (assuming it does and that is an open question if the stock market drops sharply), I find it difficult to believe that there is going to be substantial buying below the bonds, especially at their current elevated levels.

The elevated margin requirements for silver have basically destroyed the entire commodity complex rally as funds and other long side specs are being destroyed by the deep losses in their silver positions and are now rushing to blindly sell positions in the rest of the complex to stem the bleeding.

Silver - 8 hour chart update