"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, April 5, 2013

Hedge Funds Target Silver

The hedge fund community, after pressing the Copper market from the short side to the point that they are now net short in the red metal by nearly a THREE to ONE ratio, are now moving to go after silver from the short side. This is the first time since the history of Disaggregated Commitment of Traders report broke out the hedge fund category (2006) that this group of traders has been NET SHORT the silver market.

Keep in mind that today's report (Friday) does not cover the further drop in silver below the $27 mark that occurred Wednesday and Thursday of this past week. No doubt a large portion of that further plunge was due to additional hedge fund shorting. The report also will not pick up today's short squeeze which caught a few of these newcomers to the short side off guard. However, based on what I can see of the attitude of the hedge fund community towards commodities in general, it is going to take some strongly bullish fundamental factor to drive these guys out of their short positions.

Any sort of sustained and strong rally in stocks might do it but I suspect it is going to take a series of economic reports showing solid growth in the US and global economies to get silver going to the upside along with copper.

Today's strength in silver was a by-product of gold, which pulled the grey metal higher - nothing else....

Gold and Mining Shares Part Way

Once again we are being treated to the sad spectacle of watching the ancient metal of kings soar higher today while the shares of companies that explore or mine it went lower. It is becoming a like a bad play or drama or to quote from Shakespeare:

"A tale told by an Idiot, full of sound and fury, signifying nothing."

Although, in our case, it does signify something, namely, that the mining shares continue to attract selling seemingly no matter what comes their way. First we were told that they were heading lower because miners were unprofitable and had not gotten expenses under control. Then we were told that they were selling off as investors were putting money to work in other sectors and the miners had fallen out of favor as gold saw no immediate threat of inflation. Now we are told that they are falling further out of favor because stocks in general are falling out of favor. Need I say any more? There always seems to be an excuse to see another move lower in the mining sector. Quite frankly, until I see some signs of solid, sustained buying that comes in to take this index through some overhead chart resistance levels, I expect rallies to be sold.

I am not rooting for this; I am merely stating the situation from a technical analysis perspective and attempting to stay as objective as possible. The current situation is that the miners seem to have lost all sponsorship except for the most stubborn of bulls. Value based buying is certainly occurring as the shares are shifting into the possession of strong hands but we need more than value based buying to ignite a fire in the shares. When will that come is the question that we all want to know and the simple truth is that no one, and I mean, no one, knows at this point.

Here we had a day in which gold is up over 1.6% while the HUI is down. This further exacerbates the already way out of whack HUI/Gold ratio which had recovered somewhat in yesterday's blip higher but has now given back most of its gains. At this point I almost shudder to think what might happen were the US equity markets to finally rollover to the downside in earnest.

Remember, it took the announcement of QE1 back in late 2008 to turn the gold shares, as well as gold and the broader equity markets to the upside. We have had 4 bouts of QE already and they are still sinking. What do we need - a new round of QE - the sort of US version of the recent Bank of Japan, "Let's throw everything but the kitchen sink at the problem" and hope that this will work? Will that finally do the trick of getting the mining shares moving higher?

If you look at a chart of the Nikkei you can see that the Bank of Japan has been successful in getting the Nikkei moving higher but at what great cost to their currency and eventually to their bond markets?

The CCI was higher today but that was no thanks to crude oil or to the rest of the commodity complex. Were it not for this nice big up day in gold and some strength in silver, we would have been lower in the CCI also. Crude oil to me continues to defy gravity given the general weakness in the US economy but it has retreated away from $98 and is now well off that mark. I am surprised it is sitting above $90 to be honest especially with the stark weakness in many of the other commodity complexes and today's pathetic payroll's report. Someone is intent on driving that market higher even in spite of the negative news in the economy, not only here but globally. I am not sure who is trying to squeeze the shorts but they are playing with fire in my view, not with clear signs of stagnating growth everywhere one looks with perhaps the exception of the housing market that is being fed an IV containing an abundance of liquidity drugs compliments of the Fed.

Take a look at the Russell 2000, a very broad basket of small cap stocks which has been a good gauge of investor sentiment towards risk. It led the larger cap stocks higher as the liquidity party commenced but now has shown definite signs of becoming "tired". It is trading below its 50 day moving average, something that it has not done since the beginning of December of last year. While the Plunge Protection Team is no doubt out in full force today continuing their meddling in our financial markets, this particular index is revealing a genuine flight away from risk on the part of the investment crowd. Throw in the fact that the bond market is soaring today with the yield on the Ten Year Note sinking below 1.7%, and it is difficult to see whether the market rigging by the authorities is going to be able to shove the US stock markets higher in defiance of gravity. 

Don't worry however - if they do, rest assured you will have the roosters crowing about how resilient this US stock market is and how it shows a vote of confidence by investors... right.... and elephants also roost in trees at night.

Archimedes was once said to have stated" "Give me a place upon which to rest a lever, and I will move the earth". The Fed and the Bank of Japan are apparently putting his Lever Theory to a test because they are attempting to move the entire financial system of the world with their level of QE.

My view on this is that they are destroying capitalism. Remember when former President George W. Bush stated that as much as he was reluctant to employ TARP to bail out the banks that "we had to do it to save capitalism"? HUH? Yep, free market capitalism, meaning markets function smoothly when left to themselves as they are efficient allocators of capital. Apparently that died a long time ago. I do not recall seeing the funeral but I know for sure that it happened.

All that these people manage to do is to blow enormous bubbles and then spend the rest of their days here on the earth managing the disastrous results that result from the bursting thereof.

Payrolls number gives Gold a Jolt Higher; Sinks S&P 500 - Unemployed Resort to Stealing Maple Syrup

It what has to be one of most miserable jobs numbers in some time, we learned today that the number of Americans who are involved in the Labor Force has now shrunk to levels not seen since 1979! Think about this for a minute - we are talking 34 year lows! 

Yesterday we were greeted with the news that the US poverty rate is now back at levels last seen in the 1960's! Remember when Lyndon Johnson declared war on poverty in this nation. Well, it looks like under the Obama administration, the US just lost that war.

We had a market looking for an increase in hirings somewhere in the vicinity of 200,000. Instead we got a paltry 88,000 and one has to wonder how many of those are due to the birth/death model.

Taken together, any idea of a premature end to QE3 and QE4 is certainly off the table based on this recent series of data.

While not trying to make light of the number of our fellow citizens who have completely given up on finding decent employment or have been forced into taking part time work to attempt to make ends meet, I was struck with a story appearing on the Drudge Report this AM detailing an increase in theft of maple syrup up in the state of Maine. It seems like you can get $50/gallon at the retail for this stuff. Maybe some of the unemployed have decided to go into the maple syrup business. They sure as hell cannot find work in this nation.


It looks as if the bullish euphoria, a euphoria which I have been mocking and will continue to do so, is finally wearing off of the equity bulls. WE noted this week on the S&P 500 chart a "just miss" on a  Bearish downside reversal pattern. After we got news about the Bank of Japan's "all-in" on the liquidity front, the force of the reversal was lessened as risk was back in vogue. Today, that reversal pattern is seeing some further downside confirmation. The day is yet young but the S&P 500 stands a good chance of putting in a WEEKLY DOWNSIDE REVERSAL PATTERN. We have not seen one of these on the S&P 500 chart for a long time (since May 2011). If the market does not stage one of those late-in-the-session miraculous recoveries, it could very well portend that this overbought, overextended stock market is going to finally see a deeper and more protracted retracement in price.

I want to add here that in the battle between Dr. Copper and the broader US equity markets, it appears as if Dr. Copper is being vindicated. The base metals, the grains, some of the softs as well as the broader Continuous Commodity Index were all sinking while the equity world was in its own little La-La land and soaring ever higher into the clouds. Both of these cannot be right. It looks as if those concerned about slowing global growth and deflationary pressures are being vindicated although cackling before laying an egg is not a good idea. Let's see where the dust settles today before getting too dogmatic.

Something else to note here - normally in the past, on a day like this in which risk is being taken off as indicated by soaring bond prices, the US Dollar and the Yen are the recipients of safe haven flows. The Dollar is moving lower today as the Euro and the Pound are seeing inflows while the Yen is dropping sharply on the heels of the policy change by the Bank of Japan.

Just when you think you have the drill figured out, the rules of the game change. Now we will need to see how to interpret all of this in the days and weeks ahead. Is this a  temporary aberration or the start of yet another new trend. It is hard to believe that anyone would consider the Euro a safe haven given the recent events over there. What does that tell you about the mess in the currency markets? This is gold's moment to shine if there ever was one. It had better not disappoint.

At least it is not disappointing in terms of the Yen. Take one look at the following chart and you can see how the Japanese public is seeing their currency debauched. Given this, why anyone would want to own Japanese government bonds outside of the Bank of Japan, I will never understand. When you are getting 0.5% on money for TEN YEARS and the underlying currency is collapsing, you would have to require a frontal lobotomy if you put any money into those things.