Tuesday, April 23, 2013

The Mercenary Geologist: Money in the Bank? LOL!

The Mercenary Geologist suggests that you keep money OUT of the banks...  Read on!

A Monday Morning Musing from Mickey the Mercenary Geologist
April 15, 2013

O Gold! I still prefer thee unto paper,
Which makes bank credit like a bark of vapour. Lord Byron, 1815.

It was 1:30 am on Thursday March 28 on the West Coast of North America.  Still jet-lagged a week following my return from Asia, I awoke after a mere three hours sleep to an epiphany.

The thought evidently coincided with the time that banksters in Cyprus braced for a run on reserves. Their intervening measures to prevent bank failures included severely discounting the value of large investors’ deposits and radically limiting cash withdrawals for peones to 300 euros a day.

Here’s the idea that woke me up: If you keep your money with the Banksters, they are LOL.

I must question why any smart person with financial assets in any fiat currency held anywhere in the world would freely choose to keep the majority of that cash in any bank anywhere in the world.

At its very best, a bank is a 10:1 fractional reserve system; i.e., the bank backs 10% of its outstanding loans by the equivalent in paper money. In actuality, the majority of banks are leveraged much more than that. Fractional banking has existed for centuries. In the early 1600s, central governments in Europe began to manipulate money supply and credit in order to regulate banks, restrict bank runs, and prevent bank failures.

In early 1700s, England formed a joint public-private banking monopoly designed to alleviate its national debt. The South Seas Company was a conspiratorial scam involving government accountants, stock promoters, and politicians based on a purported but non-existent trade monopoly in South America. In 1720, the “Bubble Act” was designed to preserve the monopoly by outlawing competition, but it soon resulted in massive bank failures, financial panic, and economic collapse. Henceforth, the term “bubble” refers to any market that goes parabolic over a short period of time.

I know an ex-banker in Albuquerque whose hometown bank failed during the US housing market collapse in 2008. He was ruined but at least his small clients’ investments were backed and honored by central government-issued bank insurance, made whole by the keyboard creation of fiat dollars. His creditors were less fortunate, writing off huge sums of bad debt.

The current Cypriot bank crisis and the resulting closure of its stock market for two weeks illustrates that banking remains an inherently risky business, often fueled by speculative credit markets that are subject to collapse.

History has shown us repeatedly that all fiat money systems eventually fail and lead to government default and demise. Even the value of the United States dollar has been rolled back twice in the past 80 years.

In 1933, President Roosevelt devalued the dollar 70% by raising the fixed price of gold from $20.67 to $35.00. His executive order also reneged on the government’s promise to redeem paper currency in gold upon demand and made it illegal for citizens to own more than five ounces of bullion.

The Breton Woods Agreement of 1944 made the US dollar the world’s reserve currency and it alone was decreed as redeemable in gold and only by other central governments. In 1971, the US defaulted again when Nixon closed the gold-for-dollars option and floated its money on world exchanges. Since then, greenbacks have had no backing except the United States of America’s promise to pay.

Since the first baby boomers were born in 1946, American citizens have been taught, cajoled, and perhaps even brainwashed into thinking that the almighty dollar, the world’s reserve currency, is a stable fiat money beyond question and reproach. Acceptance of this idea requires a belief that the US government is solvent and will remain so into the future.

But this very same government has gone bankrupt and defaulted on its financial obligations twice during my parents’ lifetimes. Why would you think they will not do it again in yours? Is it your faith, belief, or a combination of both?

I kindly remind you what Mark Twain had to say about that: Faith is believin’ what you know ain’t so.

Face the truth folks, your money is not real money unless it is held in physical gold.

Let’s look at current facts about the American banking system and how it takes care of your money:

·         The central bank (Federal Reserve) creates more dollars (inflation) and devalues the purchasing power of your money every minute of every day to the tune of several percentage points per year. The Fed has been doing this at an exponential rate since the financial crisis of 2008, more than tripling the dollars in circulation.

·         Your local bank is paying you a tiny fraction of a percent in interest for the privilege of holding your money in checking, savings, and money market accounts. At current average rates for a $100,000 account, the bank will pay you interest income of about $110 per year, subject to federal taxes up to 39.6%.

·         However, the bank doesn’t actually hold your money; it lends it out to debtors at much higher interest rates. That’s how a bank makes most of its money, or at least it used to.

·         The bank also takes in money by charging you fees for its privilege of lending your money to debtors. The charges you incur for check printing, ATM withdrawals, overdraft protection, foreign transactions, wires, and exchange rate spreads have skyrocketed since 2008 and are likely to far exceed the aforementioned interest you earn.

·         Banks always have a percentage of loans in which the debtor defaults. These are actually liabilities but are euphemistically called “non-performing assets”. If this percentage exceeds cash reserves and liquidity becomes a question, many depositors will try to remove their money quickly before the bank fails. That creates a bank run and the bank will default on its obligation to you.

·         At that point the bank is taken over by a federal government agency and placed into receivership. Small depositors’ funds up to $250,000 per account are protected by the agency via a bank insurance program and are reimbursed simply by creating more fiat money.

·         Liabilities are absolved and the bankrupt bank’s remaining assets are sold at discounted prices. Partial returns of capital are distributed to its first-in-line creditors. Most of the creditors however, are left only with bad debts to write-off against their taxes.

Despite their many flaws and shortcomings, banks are a necessary evil within our modern-day system of business. As a law-abiding citizen, you are required by the government to use a bank to move any significant sum of fiat currency from one entity to another. Transfers of funds can include not only the old in-out (re: Alex from A Clockwork Orange, 1962) but also the over, under, sideways, and down (Yardbirds, 1966).

If you are still reading this rant, I assume that you accept the above as more or less correct. Or perhaps you just got a chuckle out of my reference to the early to mid-1960s when US government debt was about $300 billion. Federal debt is now 56 times that figure, at well over $16.8 trillion and growing rapidly. Note this astronomical number does not include unfunded future liabilities such as pensions and health care for the old folks at home. Yikes!
The simple fact is that by keeping your money in a bank, you are losing wealth each and every day.
I have no faith and refuse to use the word believe (Mercenary Musing, December 28, 2009). Therefore, logic demands that I question the viability and longevity of our current monetary system and beg the following questions of you:

·         Should you not keep only enough fiat money within the world’s banking system to carry on your daily requirements for personal and business affairs and nothing more?

·         Should you not buy more gold with those constantly depreciating dollars that you remove from said banking system?

·         Should you not hold your excess, discretionary, and/or emergency fiat dollars in your personal possession at all times, the same as you do with your physical gold bullion?

I’m just sayin’: If all your money is stored by the Banksters, then I surmise that they are occasionally LOL while sipping Dom Perignon and being serviced by $1000 per hour hookers in their bullet-proof Lincoln limousines at your expense. After all, much of those multi-tens-of-millions-of-dollars in annual bonuses ought to be expensed to avoid onerous government taxes, no?

If you have your fiat currency in your physical possession, the Banksters can only devalue it and that’s exactly what they are doing now. But the bank and/or the government cannot confiscate your gold or your money that you physically hold without engaging you directly.

Unless of course, you are already dead. When that happens, the government confiscates a significant portion from rich people’s heirs in another scheme called the estate tax, levied for the privilege of dying. After all, life is a death sentence.

Because of periodic wars and central bank interventions, US baby boomers and subsequent generations have never witnessed a long financial collapse. However, my long-gone grandparents lived thru en masse bank failures and an entire generation struggled to make ends meet during the decade-long Great Depression. Colored by that experience, many folks abandoned banks altogether and kept their paper money and illegal gold coins stuffed in mattresses or hidden in old coffee cans under the crawl space.

I remember that my Granny Alexander used to put her change in a piggy bank every day. Periodically she would roll the coins up and take them to the bank for exchange into paper money. Those paper dollars were then taken home and stashed away in her secret place, ready and waiting for a rainy day.

At her urging when ten and eleven years old, my brother and I collected pennies of different years and mints in little blue books. I still have that collection of pennies, some of which are worth way more than a pretty penny now. Rest assured this book is not stored by a bank in a safety deposit box that I do not own, to which I am afforded access for only 35 hours in any 168-hour week, and in which the government upon a whim can order the bank to open and confiscate its contents.

My parents’ generation lived thru the 1930s and savvies bad financial times. These old folks are not only likely to own gold but also have a considerable stash of cash in the cookie jar, a home safe, or another hiding place with easy access at their leisure or in a monetary emergency. In my opinion, that’s not a bad idea.

We came pretty darn close to a monetary emergency when the banks crashed in 2008. A bank run in the US likely would involve the invoking of martial law, the shut-down of ATM machines, lengthy bank holidays, long waits in queues upon re-opening, and severe limitations on personal withdrawal amounts.

That sounds a lot like the past month in Cyprus to me.

In the 42 years after remaining vestiges of the gold standard were dissolved, numerous countries have defaulted on their currencies and debts, leaving their suddenly poor ordinary citizens to suffer the consequences. Meanwhile, their Banksters merely re-organized and promulgated perpetual paper pyramid schemes again.

Rest assured it will happen in the good ol’ US of A once again; we just do not know when.

Please do your own due diligence and research before seriously considering my maniacal musings, radical raves, libertarian literalisms, or inane ideas.

Don’t let the Banksters’ have the last laugh on you. Buy more gold and mattresses.

Ciao for now,

Mickey Fulp
Mercenary Geologist

Acknowledgement: Michelle Lopez is the editor of MercenaryGeologist.com. I thank Blake Desaulniers and Rana Vig for hearing out my stream of consciousness diatribe on banks and providing early feedback on ideas presented in this musing.
The Mercenary Geologist Michael S. “Mickey” Fulp is a Certified Professional Geologist with a B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology from the University of New Mexico. Mickey has 35 years experience as an exploration geologist and analyst searching for economic deposits of base and precious metals, industrial minerals, uranium, coal, oil and gas, and water in North and South America, Europe, and Asia.
Mickey worked for junior explorers, major mining companies, private companies, and investors as a consulting economic geologist for over 20 years, specializing in geological mapping, property evaluation, and business development.  In addition to Mickey’s professional credentials and experience, he is high-altitude proficient, and is bilingual in English and Spanish. From 2003 to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia. 
Mickey is well-known and highly respected throughout the mining and exploration community due to his ongoing work as an analyst, writer, and speaker.

Disclaimer: I am not a certified financial analyst, broker, or professional qualified to offer investment advice. Nothing in a report, commentary, this website, interview, and other content constitutes or can be construed as investment advice or an offer or solicitation to buy or sell stock. Information is obtained from research of public documents and content available on the company’s website, regulatory filings, various stock exchange websites, and stock information services, through discussions with company representatives, agents, other professionals and investors, and field visits. While the information is believed to be accurate and reliable, it is not guaranteed or implied to be so. The information may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. I accept no responsibility, or assume any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information. The information contained in a report, commentary, this website, interview, and other content is subject to change without notice, may become outdated, and will not be updated. A report, commentary, this website, interview, and other content reflect my personal opinions and views and nothing more. All content of this website is subject to international copyright protection and no part or portion of this website, report, commentary, interview, and other content may be altered, reproduced, copied, emailed, faxed, or distributed in any form without the express written consent of Michael S. (Mickey) Fulp, Mercenary Geologist.com, LLC.
Copyright © 2013 Mercenary Geologist.com, LLC. All Rights Reserved.

Sunday, April 21, 2013

Review of Barron's -- Dated 22 April 2013

Barron's, for the second time in the past several months, has a bullish Cover Story that is almost begging to be shown as a huge contrary indicator...  Photo from Zero Hedge (http://www.zerohedge.com/news/2013-04-21/yet-another-market-top-indicator) just this afternoon:

For the Dow to make it to 16,000 that would mean a jump of about 10% from here, it could happen.  The previous (in)famous bullish cover was published in October 2012, and stocks are up some 10%.  So, the Big Money Poll was actually correct at least in the six months from October until now.

I pay attention to their Big Money Poll ever since I read in September 2007 they predicted (BEFORE the primaries and caucuses) that Barack Obama would be the next president, at the time it seemed that Hillary Clinton had the lock for the Democrat nomination.

Author Jack Willoughby writes up the results of Barron's "Big Money Poll", their every six months tabulations of predictions of professional money managers (135 of them this time).  He notes that only ONE THIRD of these money managers have the Dow at at over 16,000 by mid-2014, so, uh, the title is just a wee bit deceptive...

Willoughby notes that 73% of these money managers are Bullish now, very high (previous percentages cited by Willoughby range from 45% - 55%), and that 73% might be the contrary indicator (1% are "Very Bullish").  Only 19% are Neutral and just 7% Bearish (27% were Bearish in October 2012).

Barron's asked the money managers to put the stock rally (since March 2009) into baseball terms, 61% of them put the rally in the fifth through seventh innings...

They are an astonishing 94% optimistic on stocks for the next five years!

Here are the most loved and the most hated stocks, I put the names in blue that are hated AND loved:

Favorite Stocks:

Apple, Ford, Intel, Gilead Sciences, eBay, Google, National Oilwell Varco, Uni-Pixel

Most Overvalued:

Amazon.com, Facebook, Apple, Salesforce.com, Netflix, Best Buy, Google, Groupon, J C Penney, Progressive

I can note that some of the unpopular stocks have all gotten very bad press from CNBC, etc.

Which will be the best performing asset class in the next six to 12 months?:

Equities                      70%
Real Estate                 16%
Gold                           11%

(Gold was at $1550 or so when the poll was conducted)

Many of the money managers see a drop in the Dow to 13,500 or so, some 7%.


Am I going to have to stop calling "Up & Down Wall Street" Alan Abelson's column, and now call it Randall W. Forsyth's?  Forsyth once again writes this one up, titled "A Deflationary Wave".

"Keep calm and carry on" he writes, this phrase invoked as a kind of magic charm that some are pushing re last week's declines in stocks (and gold).  Forsyth goes into more detail than is normal for Barron's in discussing gold.  While gold is down sharply, he notes that so is Apple (ticker: AAPL), gold is down 15% over the past 12 months, Apple is down 42%...

The other commodities are down too.  Hence the title about deflation.  He notes that Treasuries, and especially "TIPS" (the Treasuries that are "inflation protected") are throwing off signs of deflation as well.  The Fed notes this, and there is backpedaling on talk about ending QE...  QE does not seem to be working...

Finally, Forsyth passes along the views of Paul Desmond (Lowry Research) who is bullish.  Desmond is bullish indicator No. 2 this week.


"Streetwise" author Kopin Tan pitches a mixed picture re stocks and certain sectors.  I have noted before than Mr. Tan is sometimes not easy for me to summarize, but it looks like he is passing along a view here that maybe the correction is over, or nearly so, and that cyclicals are worth looking at.  He quotes ever-popular Stephanie Pomboy as saying the Fed is nowhere near done buying up US debt either (which parallels this afternoon's Zero Hedge story: http://www.zerohedge.com/news/2013-04-21/unprecedented-660-billion-excess-debt-demand-and-what-it-means-bond-yields


"He Said":

"Our fidelity to our way of life, for a free and open society, will only grow stronger...inthe face of evil, Americans will lift up what is good."

President Obama after the Boston bombings


Kopin Tan writes a piece in "Follow-Up" about Apple.  It has gone down over $100 since the original piece appeared in mid November 2012.  Arch-rival Samsung is up.  And Exxon-Mobil (XOM) is once again the world's largest company (market value).


Andrew Bary writes up a bullish piece on the gold miners.  He notes that the three stocks and the four ETFs he lists are down between 17% - 49%, Barrick Gold (ABX) down the most (49%) and the junior gold stocks ETF (GDXJ) is down 41%.

[Ed. comment: Uhm, well maybe so.  But the miners are MUCH riskier than physical gold.]

Gold stocks would best be left to traders...


Jack Hough writes of a class of companies that I did not know even existed (as traded stocks): "business-development companies" (BDCs).  BDCs typically loan money out to smaller companies who cannot arrange for bank loans.

The four BDCs profiled by Hough yield an average of 8.8%!  Well above typical junk bonds yielding +/- 5.7%.  The four of them are:

Ares Capital (ARCC) yielding 9.0%
Golub Capital (GBDC) yielding 8.0%
Hercules Tech Growth (HTGC) yielding 8.4%
New Mountain Fin (NMFC) yielding 9.8%

All four of the above have 75% or more of their yields covered by loan interest alone, which Hough says is probably the best way to judge relative safety of these guys...  Please note that these seem RISKY to me, but, I feel obliged to point out income opportunities when available, as it is hard to make passive income now.


David Englander writes a bullish piece on Chiquita (CQB), famous for bananas.  They are lost money in 2012, but he says they will make money in 2013, and that their shares could rise 20% or more.


Michael Kahn joins the parade of analysts looking at "the technicals" of gold, hey, I did that too a week ago!  LOL...  He draws a chart with lines and everything, and goes on to note that maybe the technicals are showing some signs of a bottom, but that there is momentum to the downside.  He mentions a survey by Jack Bernstein (trade-futures.com) that most traders are bearish, as are the miners who hedge.

He draws to two lines, parallel, but very close to each other on his chart: $1300.  Hmm.


Tiernan Ray ("Technology Week") writes of a battle going on re Dish Network (DISH) trying to take over Sprint-Nextel (S).  I did not know this was even going on.

FWIW, I could care less, neither company is of interest to me.


Vito J. Racanelli writes about poorly-performing REIT CommonWealth REIT (CWH).  It looks like their management has performed poorly, and there are activist shareholders pushing for changes.



Jim McTague writes about "The Number".  Hey!  Another thing I knew nothing about.  The Number is being calculated by the GAO and is, in simple language, the amount of the subsidy that the TBTF banks get to keep their status of "TBTF"...  Meaning that they can pay less for deposits.

Senators Sherrod Brown and David Vitter want to impose higher capital cushions on those banks.  Both Senators (as well as many other Senators) are still angry about the banks in the wake of 2008.

No one knows when The Number is due out, but McTague says it will "surely emit shock waves".  well, we'll be watching.


Lawrence C. Strauss interviews Scott Minerd (Guggenheim Partners).  Minerd discusses gold's price plunge and how that will affect other assets in the short-term.  He feels "a fairly healthy correction" of around 10% is likely [I concur].  But, he is bullish further out.  Minerd believes that low interest rates (he uses the words "financial repression", a term I like very much) will be the norm for many years (at least through 2017, likely 2019).

After short-term issues, however, he likes the USA, vs. Europe and Japan.  Here's what else he likes:

-- US financials (not me!)
-- US housing (not me!)  <-- US housing is at risk IMO: bad demographic trends
-- technology stocks (hey, could be OK)
-- he likes somewhat the BRICs
-- he likes even more the MIPS (Malaysia, Indonesia, the Philippines & Singapore)


Dyan Machan interviews Francois-Henri Pinault ("CEO Spotlight"), CEO of French luxury company PPR.  He is a rival of LVMH's Bernard Arnault.

For me this biography was not of interest, usually I find "CEO Spotlight" to be more interesting.

[Am I being overly negative today?]


Editor Thomas Donlan writes that the USA is edging into a tax revolt with companies leading the way.  Currently the underground economy here in the USA is about 10% of GDP (vs. some 30% in at least parts of Europe).  And yet the problems of the Baby Boomers will cost money, big money, and that will be financed (as long as possible) with debt (which Americans accept) rather than taxes (which they do not like).

He notes two important trends among companies: leaving states like California (high taxes) and keeping income offshore (when companies are big enough and structured correctly to be able to do it).

Donlan writes that companies will be a vanguard for popular tax revolts in the future.


In the Market Week section we find that banks fell because of bad earnings last week...

"European Trader" Jonathan Buck writes that Adidas (ADDYY) of Germany will "outrun the pack".  I have no confidence in my ability to judge the market prospects for sneaker maunfacturers, so I will decline further comment.

"Asian Trader" author Leslie P. Norton writes of Chinese online status retailer VIPshop Holdings.  It seems that this company HAS been selling FAKE goods though...  Enough said for me.

"Emerging Markets" columnist Ben Levison notes that when China released worse than expected growth figures, the equities markets in Brazil and China dropped sharply along with commodities.  Commodities may stay under pressure if China continues being weak.  On the other hand, countries that are NOT big in the commodity export realm (eg Turkey, India, Malaysia, the Philippines, Taiwan, etc.) may do relatively well with lower oil and other commodity costs.

"Current Yield" writer Michael Aneiro writes that bond investors have less fear of inflation now.  [Ed. note: I am seeing LOTS of analysts who see less inflation coming...]  Aneiro notes that the bond markets have been behaving oddly as well (like almost everything?), particularly corporate bonds (they have gotten gotten stronger with lowered inflation expectation, apparently the opposite of their normal behavior).  The 10-Year yield fell to 1.703%.

"Commodities Corner" authors Owen Fletcher write about bearish prospects for soybeans (lots of sybeans in South America and a big crop anticipated for the USA) and Tatyana Shumway about possible bearish prospects for gold (technical levels at $1300, then $1100...).

Insider sold some $42 million worth of popularly reviled Monsanto and $36 million in Verisk shares recently.

The Mighty Peruvian Sol weakened almost exactly 1% last week, perhaps due to worries about commodity exports to China.


Verdict:  Well, this issue was a bit less interesting than normal, but I will be watching to see how the Big Money guys do re their predictions...

Friday, April 19, 2013

Spookier And Spookier...

It has been a long and strange week in the financial markets all over the world:

Gold and Other Precious Metal Prices Plunge

On Friday April 19 and Monday April 22 the price of gold (more accurately: "paper gold") plunged about $120 per ounce, the biggest percentage drop in decades.  This drop represented a paper loss of $720 billion:

6 billion oz of gold in the world * $120 / oz = $720,000,000,000

The other precious metals dropped sharply as well, the price of silver dropped even more on a percentage basis.  Platinum and palladium joined the ride down.

And yet buyers of physical precious metals were out in force all over the world, author included, lined up to buy gold.  I was only able to buy two ounces (total) in two visits to my local coin shop, that's it!  All that was available.  China and India had people lined up in buying frenzies.  Yet the "paper price" went down.

The "premium" (the extra price for a gold coin above the spot price: see the eBay/24hgold.com widget here at the home page: 24hgold.com at the bottom, currently the premium is about 14%, pretty high) on buying gold also went up.  The premium I paid earlier this week was about 7.2% (Gold Eagle) at the coin shop, high for them.

Silver is even harder to get (and with higher premiums).  Most of the popular silver products are not available at all.

Other Developments

-- Stocks had their worst week in five months.
-- The two bombings in Boston caused well over a billion dollars in losses there.
-- The relative media silence on the far deadlier Texas fertilizer plant explosion.


The CBC of Canada has produced a special show "The Secret World of Gold".  You can watch it here (link is at): jsmineset.com (of April 19, 2013, in three parts).

The CBC report discusses a lot of interesting items:

-- Andrew Maguire's story, he was a precious metals trader in London who has attempted to blow the whistle on Morgan Stanley and their pretty obvious manipulation on silver and gold prices.

-- The American company Odyssey Marine's story of salvaging gold and silver from the Atlantic Ocean, including their losing their find to Spain...

-- The story of how France got their gold out just before the invading Nazis could capture it during World War II.

-- Canadian billionaire Eric Sprott (who runs a lot of gold & silver as well as gold & silver ETFs) as well as Sprott's employee John Embry.

-- Venezuela's taking their gold back.  Apparently when they wanted their 400 and something tonnes, that created a mild panic among the custodians (the UK, Europe and the USA) of their gold...  I wonder if Germany not getting much of THEIR gold over the next several years would be related to that...

-- Doubts among some that the US national gold at Ft. Knox has not been properly audited since 1954...  (Note: performing such an audit that would satisfy skeptics would be cheap and easy to do).


The Obama Administration failed in its current efforts to advance their gun-grabs.  The Senate effort to adopt the UN treaty on small arms failed as did the effort to impose stricter gun law registration and gun checks.  The Administration and their D-Team allies in Congress want more laws, always more laws.

How about they enforce the ones we have now?

A parallel effort is underway to grant essentially an amnesty to illegal aliens.  It is not being painted this way, but that is the real goal.  Whatever the D-Team gets through now, they will ask for more later.  One of those "Camel's nose under the tent" things...

Again, the laws on illegal immigration are actively and deliberately not being enforced.

The above two efforts are clearly aimed at expanding government power at the expense of the citizens (gun-grabs) and at expanding the voting base of the Democrat Party to insure their dominance in the future.


It was just this afternoon that we learned that Tamerlan Tsarnaev (the elder Boston Bomber) was apparently an Islamic extremist who went to Russia and Kyrgyzstan in 2010 for six months.  Was he trained by Chechen extremists?  Apparently our government was warned about Tsarnaev, and the FBI questioned him.  We were warned...

Monday, April 15, 2013

Monday Massacres

There is no doubt that today has been a very bad day.

As I write (4:20 PM US ET) there appear to be at least two dead and dozens injured in Boston, at the Finish Line of the Boston Marathon.  There were two explosions, and the police apparently found another (unexploded) two bombs in a hotel nearby.  No reports, yet, of who did it...  News updates continue to come in.

US stocks (DJIA) took a 260 hit as well, its worst drop of the year...


Things went badly in the gold trading arena as well.  The below "two-year" chart is from stockcharts.com, and shows what has happened in the past two days, a huge price plunge (as with all images, *click* on any image for a clearer view).  It is a weekly chart, and so shows the price drop of last week and Monday (first day of this week):

Because I was unable to round up either of my two friends to give me a "technical take" on the price of gold, I will take a crack at it.  I do not do Technical Analysis and have grave doubts as to how much predictive power such analysis has, but I respect my friend who is apparently very good at it.  I hope I can convince him to share something with us soon.


The below charts are the same as the above (enlarged), but with my annotations (again, click on chart for a clearer view):

The vertical green line shows where "paper gold" was in late March, when I "got out of the prediction business".  The horizontal green line (lower) that shows closing price and "weak support" around $1361.  The brown horizontal line shows a "possible quadruple bottom" (defined loosely, smile...) and how the price of gold just sliced right through it...  My friend Ralph has told me: "There ain't no such thing as a quadruple bottom."  The top (diagonal) brown line tracks the two most recent highs, I often see that line drawn by technicians...

The below is the same chart showing some other annotations.  At the upper right is stockcharts' Relative Strength Index, it shows that gold is somewhat "oversold"...  That does not mean it cannot become even more "oversold" in the coming days...  Similarly, at the bottom right shows the "MACD", also showing a technical "oversold" condition.  Finally, today the gold price sliced through the 200 Day Moving Average, a somewhat bearish indicator as well.


Please note that I had NO IDEA that this kind of a drop was in the cards...  Yes, I did read at Zero Hedge that our friends of Goldman Sachs advised clients to sell gold short last week.  Maybe Goldman finally made a good call re their "muppets" (derogatory term for customers, I believe it was someone at Goldman that coined the term).

Please also note that my technical trading friend will likely skewer me for writing this!

Sunday, April 14, 2013

Review of Barron's -- Dated April 15, 2013

I am going to review Barron's now, but my heart is really more interested in what is going to happen to gold this Sunday evening...  In a concession to my heart, I will keep this review relatively brief.  Some may smile...  :)

The Cover Story ("End of the Line for Priceline?") warns that Priceline (PCLN) is at risk of price wars with competitors Expedia (EXPE), Orbitz (OWW) and privately held Travelocity.  Author Salzman provides a graph showing Priceline is up some 450% from April 2007.  This looks like an industry that is too competitive for my taste...  Four competitors doing the same thing -- internet travel?  No thanks to any of the bunch.


Randall W. Forsyth again writes for Alan Abelson.  This week he covers two issues that Zero Hedge covered in rather good detail last week: Bitcoins and gold.  Forsyth mentions that Barron's writer Ben Levison (who covers emerging markets and is their Bitcoin observer) noted that the Bitcoin price crash resembled that of silver in 1979-1980.  Yet, the governments and central banks of the world are still merrily spending (and printing) money...  Which should be good for gold (and the other PMs).  Recall that Japan is debasing its currency at a near frenzy.  Forsyth, finishing his analysis of gold (perhaps he should have written a "if physical gold is actually available" condition in there...):

"For now, gold no longer is loved, which, to an independent-minded contrarian investor, only adds to its allure."

Forsyth then finishes his column by noting that low volatility ETFs have just come out...


"Review & Preview" had a short note on something I missed, that the Treasury sold some $621 million in GM stock, GM's CEO said he expects the rest to be sold by early 2014.

"He Said":

"We received regulatory orders requiring improved performance in multiple areas... Unfortunately we expect [to] have more of these."

JPMorgan Chase CEO Jamie Dimon



In "Follow-Up", writer Kopin Tan re-iterates their bullish case for Korea, whose stock market performance has not been good recently (with Kim Jong-Un memacing them to the north and Japan's depreciating Yen).  But the Korean Won is down some 7% vs. the dollar (which I did not know), and there are a couple of analysts who believe Korea is a good buy.  Hey, I hope so, a healthy Korea is important to our business!


Tiernan Ray writes a kind-of bullish piece on Yahoo (YHOO).  He notes that Yahoo is expanding into mobile internet and knows how to deal with large numbers of data requests.  They are talking with many segments of mobile, including Apple.  They have hired a technologist from Nokia and are thinking of IPO-ing Alibaba Group, the Chinese commercial search engine.


Andrew Bary (perhaps channeling Kyle Bass?), writes the alarmingly titled "Does Japan Face a Debt Apocalypse?"  The short answer is "Yes".  He quotes Kyle Bass himself: "Japanese industry has been hollowed out,".

Well maybe to an extent, but Japan's rolling bearing makers (while having plants worldwide, as do Timken and SKF) are still making LOTS of bearings there.


Jim McTague ("D. C. Current") does not think much of Obama's new budget...  It "has a pulse" though, in that the R and D Teams are at least talking it over.  But there is plenty of garbage within this proposed budget, much which may not get enacted and much that should not get enacted.


Alexander Eule ("Technology Week") wonders if Best Buy (BBY) will get shoppers coming in as much as Wall Street seems to love the stock...  Amazon sells some 72% of the same products as Best Buy, and the average discount is 17% less at Amazon vs. Best Buy.


"Speaking of Dividends" author Shirley A. Lazo writes that many of the Dow 65 stocks (inc. the transports and utilities), about 20, have raised dividends recently.


Jack Hough notes that food and consumer staple stocks are getting expensive!  They have dividends that have not been going up as much...  He suggests getting out of them and looking at buying:

Boeing (BA)
L-3 Comm. Holdings (LLL)
Occidental Petroleum (OXY)
Stanley Black & Decker (SWK)
Travelers (TRV)

All five have P/E ratios at a relatively restrained 10 - 15 and all pay dividends of over 2%.


Bill Alpert interviews Adam Parker, US Equity Strategist at Morgan Stanley.  Mr. Parker has his own niche as both a quantitative researcher and fundamentals analysis.  A fusion.  He claims that stocks that passed both analyses (quantitative and fundamental) OK did better than when whichever stocks only passed one test...  He likes Symantec (SYMC, lowering costs and integrating recent acquisitions), Philip Morris Int'l (PM, no US exposure to softer tobacco sales) and LyondellBasell Industries (LYB, lower feedstock (NatGas) costs will oboost returns).


"Economic Beat" author Gene Epstein wrote an article making my eyes blur..., about various tricks to cut entitlement costs. At the end of his column, he goes along with budget reformer Peter Peterson in being for a means test so that the wealthy do not get entitlements they don't need.

Um, but, but...  We'll look at this another time...


Editor Thomas Donlan notes that Margaret Thatcher really did change Great Britain for the better.  even though she encountered much resistance and mockery, she brought the UK back from an ugly brink caused by too much faith in central planning...  Donlan reminds us that her legacy is being forgotten on both sides of the Atlantic.


In teh Market Week section Vito J. Racanelli looks first at the stock market (the Dow did well last week) and then goes on to write about First Solar (FSLR) may not have a rosy future ahead of itself, despite what FSLR bulls are thinking...

"Asian Trader" author Assif Shameen suggest looking at HSBC (005.Hong Kong) and Standard Chartered (2888.Hong Kong) as ways to play Asia.  Banks?  I have kind of a mental allergy to investing in ANY banks...

Jonathan Buck ("European Trader") writes that Audrey Kaplan (a portfolio manager at Federated Investors' InterContinental fund) picks three German companies with good prospects (she thinks anyway): Siemens (SI), Bayer (BAYRY) and Rheinmetall (RHM.Germany).  Well, I would not invest anything in Europe, including Germany, right now, but that's just me!

"Emerging Markets" author Ben Levison suggests caution putting money to work in the Chinese stock market.  He suggests looking for companies that can thrive whether China's economy goes up or not.  Well, I will continue to buy Chinese bearings, but no thanks on Chinese stocks.

"Commodities Corner" author this week is Dan Strumpf.  He writes that oil may be facing "Peak Demand", a controversial notion to be sure.  Various agencies, here and abroad, suggest that upcoming economic weakness may cause oil to drop...  Strumpf: "Oil bulls, take note: fears of peak oil are starting to look overblown."  Well, maybe so.  But at some point it really seems we have to solve this oil conundrum (higher usage vs. lower production in the future).

Michale Aneiro ("Current Yield") writes that buyers of corporate bonds maybe should just be happy enough to be getting their coupons, as he and others think that corporate bond prices may go nowhere for a while...

Insiders sold some $30 million (or so) in LinkedIn (LNKD), Urban Outfitters (URBN) and Netapp (NTAP).

And the Mighty Peruvian Sol was unchanged for the week!  Zip, zero, nada!


So let's wrap it up: gold went off the cliff, but stocks did pretty well.

Verdict: I give this issue a very common remark: if any of the above is of interest to you, then buy it!

Saturday, April 13, 2013

Fallout And Other Thoughts Post-Massacre...

Here were some other thoughts I had not thought of last night when I published my initial reaction to the Great Price of Gold Drop of 2013.

First five comments on gold supplies.

  1. "Michael deV", a knowledgeable and fellow fan of FOFOA, published a comment re FOFOA's idea that physical would disappear as the paper price goes down.  Yes, I completely agree!  I have often noted his wise comments over at FOFOA's blog.  Take a look at his comment in my article just below re the Massacre.
  2. Mr. de V raised the matter of supplies drying up.  I forgot to mention that my LCS (local coin shop) sold me the last one of their Gold Eagles yesterday.  Worse: no more sales of ANY gold until Monday when they could get price & delivery information from THEIR suppliers...
  3. tulving.com, one of the largest suppliers on the internet for gold is down now, and was down much of last night when I went to look (I was curious re if they were selling and if they had changed their premiums...).
  4. There are other vague-sounding rumors about gold now getting harder to get...  Worldwide...
  5. The eBay/24hgold.com price-premium widget (found on the bottom of 24hgold.com's home page at 24hgold.com) shows a +/- 14% premium of Gold Eagles to spot price, relatively high but not unheard of.  The premium is often high for a few days after a price drop I have noted in the past.

Many of you who actually know me (or have read enough of my stuff) know that I like numbers.  Well here is a fun calculation for you.  There are approximately 170,000 tonnes (metric tons = 1000 kg each) of gold being held today around the world.  This is a pretty well accepted figure.  Take a look at the below numbers, all numbers approximate because who really knows how true the 170,000 tonnes figure is...

170,000 tonnes = 170,000,000 kg = approx. 5,500,000,000 troy oz

(That is close to one oz per person in the world)

Let's examine the "loss" seen in the gold market yesterday:

5.5 billion oz * ($80 / oz) = $440 billion dollars lost!

OK, that is a "paper loss" and may have little or no larger affect on the world as a whole (just as the October 1987 stock market crash (some 21% if you remember...) had relatively little apparent affect on the larger economy...).  Even if there is no large or measurable affect on the larger world economy as a whole, a $440 billion dollar loss, just in "paper gold" is noteworthy!

Friday, April 12, 2013

Today's Massacre

Gold today plunged $84.00!  See chart below for April 12's price action, as the 24hgold.com charts above will refresh Sunday evening...

That is a plunge of over 5%!  I am still digging around to see if I can find any "explanations" that would make sense as to the severity of the drop and the fact that it lasted all day (from the London AM Fix until the close of US trading -- typically price massacres show the bulk of a plunge to be a period of just a few hours).


jsmineset.com (Jim Sinclair) that some 500 tonnes of "paper" were sold, that was about noon-time IIRC correctly, but that would not explain the +/- $23.00 drop starting about 3:30 PM (US ET) today.

pmbug.com has some comments that may be useful, including a speculative note from "swissaustrian" (of Zero Hedge fame as well) offering an observation that something may be up in Europe...

Mr. Ferguson over there at his blog offered up some explanations there today, but he is not willing or able to say much more: http://www.tfmetalsreport.com/blog/4637/friday-gold-theatrics  It would appear that the Commitmment of Traders report was not dramatic enough to bury precious metals prices like this...

The above cursory examination is all that I will do for now.  If I encounter other explanations that seem to be worthwhile, I will post them.


Keep in mind that I do not trade gold!  I buy and hold it.  Here is a report from a small central bank and what it did re the gold price drop of today:


Please note that the bank's Senior Analyst resigned his position as Price Forecaster there.

Neither he nor I would have been able to predict the price action of today based on whatever observations of the recent past, including noting nothing amiss just last night...!

My decision NOT to try and predict the future looks better and better every day...


About the only thing I will predict is that there will be LOTS of people Sunday evening and Monday morning watching to see what's up...

Thursday, April 4, 2013

Danger In Predicting Precious Metals Prices

This is the first of an occasional series I will be writing over the next several weeks re predictions, data analysis and similar subjects.  For several weeks I have been doubtful about the use of most predictions that would truly guide us in planning our financial security.

At this point, I read predictions and just use them as ideas for further thinking...  I will be discussing the rather small value of predictions based on three books I have recently finished in another article that I will publish in the days to come.

I would like to look at the dangers of making decisions about purchasing gold, as well as silver and platinum, based on predictions.  Mostly I examine predictions in the short-term, longer-term I think we can see trends that can be useful that can guide us in buying gold...


Here are a pair of charts that will give some context to my comments below re predicting the price of gold (as always, *click* on any image for better view).  This first one is the price of gold in US$ (through 3 April 2013) over the past two years (both charts from stockcharts.com, annotations mine on the second chart).  Note that there has been "resistance" around about $1570 or so for almost a year and a half (I do not "do" technical analysis, but the price does look kind of bearish here).

Some of my readers are into technical analysis, perhaps someone will pass along comments re the above chart.

This next chart shows gold prices over the last six months.  Many of the technical indicators look bearish to me (again, T.A. comments are welcome).  But, it is not my point to look at the technicals, I would like to illustrate how I would have been wrong if I had been forced to predict the price of gold on April 1...

The pair of green bars above intersect at the date of April 1 and a gold price of about $1595.  If I had been forced to make a prediction in public, it is highly unlikely I would have foreseen the big price dip over the past three days...


I have often noted, at pmbug.com and at Zero Hedge, that when I buy gold, the price seems to "almost always" drop in the days immediately thereafter...  I have not systematically looked at this, however, and it is possible that yes, the price drops, but that might be the next day, or after three days or after a week...  I just not have kept track.  This does lead to a problem though, an issue I have noted before:

"cherry-picking (a) time frame(s)"

Just the above statement above should be clear enough so that you know what I mean.  If I buy (which is not really a prediction), "and the price goes down soon afterwards", well that statement does not really mean much...  Of course the price will likely go down if I wait some time...

The point I am trying to make here is that my purchase decisions probably do not have any predictive power at all.  This would also likely be true of any predictions I would make as well.


N. N. Taleb (Antifragile) and Nate Silver (The Signal and the Noise) in their books have both pointed out how bad the track records are of people who make predictions are, even for so-called "professionals".  I will be examining these two books and what we can learn from them regarding prediction (dangerous!) vs. identifying risks and vulnerabilities (and then fixing those, which is in essence what both authors recommend rather then predicting "Black Swans").


Note that even while I have many doubts about the value of predictions about the price of gold in the short-term, I have many fewer doubts about further into the future.  George Friedman wrote a pair of books over the past couple of years in which he outlines his guesses as to what the world will look like in 100 years (the first book) and what it would look like in 10 years (his second).  He is more confident that he has the general trend better for 100 years than for the next 10.  Why?  Fundamentals...  He believes in geography and demography as being important over the longer haul.

For similar (fundamental) reasons, like our huge deficits and debts, I am confident that the price of gold will go way up as the consequences of the decisions made by our leaders become more clear over a longer time-frame.