"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


Friday, August 31, 2012

Hedge Fund Silver Shorts getting Squeezed Out

Take a look at the following charts of the positions of the hedge fund community in the silver market and notice what has happened to them as a result of the break of overhead resistance levels on the technical price charts. Shorts are being forced out as fresh longs invade the market.

You should also note that this data does not include today's HUGE move higher which no doubt caught a large number of fresh top pickers off guard.

Monthly Gold Charts

Silver Breaks its Downtrend

For nearly the last year and a half, silver has been in a sustained downtrend in price although it has managed to find a floor of support near the $26 level. This week it has finally broken that downtrend. If this metal is going to begin a sustained rally, any setback in price should find buying emerge near the downsloping blue line shown on the chart. Failure to hold this level and particularly now the $30 level, will see the metal fall back into that triangle formation with support then coming in down closer to $28.

Note that the metal is now trading above the 50 week moving average while both shorter term moving averages are now moving higher. The trend is up.

More Pain for the Middle Class courtesy of Bernanke

Check out the following chart of the Continuous Commodity Index or CCI and note that it has managed to put in a weekly close above the 38.2% Fibonacci Retracement Level of the move lower from its all time recent high made last year. If the market pysche remains the same, look for this index to now make an eventual run back towards the 597-600 level.

We can look at these charts as subjects of interest to us as traders/investors but what this particular stock represents is increasing pain for consumers and the hard-pressed middle class in one of the worst, if not the worst "recovery" since the Great Depression.

Think of this as increased frustration at the grocery store, at the gas pump, at the hardware store, at the local restaurant, etc. While some of this rally is the result of the drought and I will of course not lay that at the feet of the Fed, it is a simple fact that the breakout on this chart today, is the DIRECT RESULT of Mr. Bernanke's insistence on implying that another round of bond buying is on the way.

When you pull into the gas station and fill up your car or truck, and are sent reeling at the cost, you can lay some of the blame right at his feet and the feet of his elitists on the FOMC who insist on pacifying Wall Street instead of having concerns how their policies are destroying Main Street.

Bernanke Jawboning the Markets

The long awaited speech from Fed Chairman Ben Bernanke at the Jackson Hole Summit has come and gone without any definitive action being announced. However, the Helicopter Man let it be known that he believes the first two rounds of QE were a rousing success.

Once again he promised that the Fed stands ready to act if the economic conditions or data warrant it. As usual, the markets, hungry for more of the spiked punch bowl, wasted no time in casting off their initial disappointment with a huge round of indiscriminate buying directed at the risk asset categories.

Gold blew through tough overhead resistance at $1680 and looks like it now has a clear path towards the magical $1700 level. Silver too punched through resistance and looks like it wants to make a run at $32.50.

My own personal view of this is that Bernanke is engaging in a round of verbal intervention, aka, jawboning the markets higher to aid his Boss' re-election efforts. He knows full well that he is going to be replaced if Romney wins. Chatter is now that the FED will proceed with the next round of QE at their upcoming September meeting.

As I have stated repeatedly on this site, why do the actual bond buying if you can achieve the same results by merely promising or strongly suggesting that you are going to do it. This is what he has been doing for a good portion of the last two months.

The S&P 500 is trading just off its peak, interest rates on the long end are low, the Ten Year is trading below 1.6%. So what in the heck would they accomplish by pushing rates any lower than they already are? The problem is not that money is cheap to borrow; it is that no one is borrowing it or the banks are not lending it because there are no jobs! The velocity of money graph shows a line heading straight down. Why in the hell do these money masters believe that another round of manufactured bond buying is going to reverse that course?

Contrary to Mr. Bernanke's lavious praise of QE and its supposed success, I believe it has been a colossal failure and enormous waste of future taxpayer money. Over $2.5 TRILLION has been spent on bond buying and what do we have to show for it except an expanded Fed balance sheet and a currency that was nearly tanked as a result. The only thing that saved the Dollar from this debacle was the fact that the Euro was even worse. Were it not for that, the US Dollar would have cratered below the 72 level and with it, the way of life for most Americans.

One casualty of this madness however will the average American middle class citizen who will watch helplessly while their food, energy (gasoline and heating oil) costs soar ever higher while their wages remain stagnant. If I did not know better, I would swear that these arrogant elitists are determined to destroy what is left of the shrinking middle class in order to appease their overlords on Wall Street, who want the funny money injected - long term consequences be damned.