Wednesday, September 30, 2009

Must-Watch Primer On Gold vs. Paper Currencies

"Why gold?" you ask. This video will be somewhat redundant for investors who already understand why gold does what gold does and why it's been a 5000 year store of wealth.  But this is an excellent 5 minute explanation of how and why gold functions to preserve your wealth/purchasing power and why gold is the ultimate hedge against the daily erosion in value of the U.S. dollar (my friend and colleague Jesse of brought this video to my attention):

When Is The SEC Going To Investigate Jim Cramer?

CIT's stock price plunged 45% today as the company collapses under the weight of billions of dollars of distressed assets (bad loans) and appears headed for some flavor of bankruptcy.  YESTERDAY, however, CIT stock ramped up over 31% as a rumor circulated the market that a $10 billion bank loan was being arranged to save CIT from bankruptcy.  The majority of that ramp up occurred AFTTER Jim Cramer came on to CNBC and pounded the table for viewers to load up on CIT stock.  Here's the link (hat tip to  Cramer: CIT to the Moooooon

Anyone who has been following the CIT soap opera knows that Pimco effectively tied up most of the decent collateral, as it engineered (some would say "forced") a $3 billion debt swap in which unsecured bonds were exchanged for super-collateralized bonds.  This basically negated any hope of a larger, secured bank debt deal and would put Pimco in prime position to profit handsomely from any future financial reorganization/liquidation.

How come Cramer did not know these facts?  Why is Cramer allowed to go onto CNBC and continually issue table-pounding stock buys on imminent train wrecks?  He did the same thing a few days before Bear Stearns collapsed.  We know by his own admission that he used to front-run stocks on inside information when he managed a hedge fund.  How do we know he's not pumping up stocks like CIT and Bear Stearns in order to allow his Wall Street cronies to get out of them before they vaporize?
My question is, WHEN IS THE SEC GOING INVESTIGATE CRAMER AND CNBC?  Why is Cramer much different that Madoff?  Both are corrupt snake-oil salesmen.  I hope some burned investors from the current CIT abortion pursue this matter in court.

Tuesday, September 29, 2009

ECU and Aquiline Resources: A Little Risk, A LOT of Return

The fund I manage owns both of these stocks, for the record (ECU.TO/ECUXF; AQI.TO/AQLNF).  I have personally owned ECU since mid-2005.  To say the least, it's been a wild ride.  Both Companies are intermediate-stage exploration miners who have discovered extremely large silver deposits.  ECU's deposit is in Valerdena, Mexico, in the heart of  one of the most prolific silver mining regions in the world.  AQI's holy grail is located in Navidad, Argentina, in the Chebut province.  At the end of the day, I view these two emerging silver miners as being "twin" companies in terms of the outright size of their respective deposits and relative stages of development.  Both have obstacles to overcome in order to unlock their massive upside value.  Either one could possibly be sitting on what will end up being the largest untapped silver deposit in the world.  Both stocks are extremely undervalued relative to the potential value being given by the market right now for their proven in-ground silver.

AQI to date has proved up 750 million ounces of silver on its Navidad site.  The stock has been moving higher over the past couple months as the political climate in its province in Argentina appears to be moving toward being more amenable to allowing open pit mining and the use of cyanide, which is used in processing mined ore.  At it's peak valuation before the 2009 bloodbath in junior mining stocks, AQI had reached a market cap of approximately $850 million.  The current market cap is $337 million, or about 45 cents per proved ounce of silver in the ground.  AQI also has two gold mines it is developing, one of which is in Peru should be operational some time in 2010.

ECU has a proven approximately 431 million ounces of silver at its three main properties, with the Valerdena deposit being the largest.  Interestingly, MICON, one of the most respected of the mineral resource testing and validation firms, also believes that  ECU's deposits have "Mineral Potential: 569,524,000 to 930,400,000 ounces of silver equivalent."  ECU's current market cap is $133 million, or about 31 cents per silver, as strictly measured, in the ground.  But based on Micon's potential estimates - let's use a mid-point of roughly 700 million ounces - ECU is being valued at 19 cents per ounce of silver in the ground.  ECU is currently processing ore stockpiles using a mill it acquired earlier this year.  One of the surprises - and which could be another big source of upside for ECU - is the amount of gold which has been discovered and is being produced from the ore stockpiles.  In other words, as ECU further develops and unlocks the metallurgy of its silver discoveries, there is a lot of gold also embedded as part of the ore mix.  The stock market is not giving any credit whatsoever to the fact that ECU has not only begun to produce mining revenues, but that a large part of this revenue stream will come from gold.  ECU has always been viewed as a pure silver play.

Just to quickly address the source of Micon's "mineral potential" statement.  The ultimate source of the mineralized veins discovered on ECU's Valerdena property has not yet been determined.  However, the geologists at ECU believe they have identified the location of a Massive Sulphide Zone (MSZ), which they believe, off-the-record, could be as big as 500 million ounces. The potential silver content of this MSZ is not included in Micon's "silver potential" estimates.  ECU's goal is to use the revenue being derived from their mill to pay for the deep drilling required to explore and prove the content of this MSZ.  I have always believed, based on several conversations with management AND with people who have been down to see the mine, that this MSZ would eventually be defined and would give ECU's stock serious upside potential.

Similar to ECU's hurdle to valuation nirvana, the instant that the cyanide and open pit mining ban is lifted in AQI's Chebut province, AQI's stock could go parabolic - at least a triple from here very quickly. 
I do believe, however, that while ECU is unbelievably undervalued relative to AQI,  both stocks have unique risk/return characteristics which make them two of the most attractive junior mining stock plays I have seen in the last 8 years.  And one more variable to consider if you decide to put some of your own numbers to the valuation potential for ECU and AQI.  Both are trading below 50 cents per ounce in the ground right now.  For general valuation purposes  at the peak of the junior mining stock valuation run which culminated in May 2006, silver minining companies, on average, were being valued at $5 per ounce in the ground. Back then silver topped out a little over $15/ounce.  We've seen silver go over $21/ounce in the last 18 months.  Imagine what the ultimate stock price/valuation potential is for Companies like ECU and AQI when silver goes back over $20 and stays there AND the market reverts to valuing silver in the ground at several dollars per ounce.

Monday, September 28, 2009

Chuck Schumer (D-NY) Is Wall Street's Favorite Senator

Schumer gets $1.65mm, or 15% of the $11mm given to Senators, from Wall Street since January 1st.  Let's see if Schumer helps the Fed implement its scheme to dump toxic bank assets into your money market funds.  Here's the link (hat tip: 

Schumer To Goldman Sachs: Thanks For the Donation

Latest Monetary Policy Proposal From the Fed Puts Your Money Market Fund At Risk

"Nothing good can come from the Federal Reserve… It's immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty," from the book "End the Fed," by Congressman Ron Paul.

The Federal Reserve is discussing the possibility of using "reverse repo" transactions with money market funds that would be aimed at draining liquidity from the financial system.  The transaction would involve swapping the toxic assets on the Fed's balance sheet for part of the $3 trillion sitting in investor money market funds.  Typically a repo transaction is a policy tool used by the Fed and executed with the Fed's primary dealers in order the "fine tune" systemic liquidity and regulate the Fed Funds rate.   They are short term in nature and involve swapping short term Treasuries in exchange for cash, with the Treasuries being the collateral in order to "guarantee" that the short term trade can be unwound with little or no risk.

Here's the link to the article that revealed this proposal:  Fed Wants To Drain Money Market Funds

The current Fed proposal is based on the fact that the primary dealer system only has enough cash to drain $100 billion from the system.  Here's what is really going on with this proposal (without getting into the technical details of how repos work):  

The Fed has purchased trillions of dollars of toxic assets from banks.  We don't know what price the Fed paid and we don't know how corrupted the underlying collateral is (the Fed refuses to disclose both pieces of valuable information).  Most of the securities involve severely distressed underlying collateral like credit card receivables, subprime mortgages, auto loans and now commercial real estate mortgages.  Most of these assets will eventually be worth less than 10 cents on the dollar.  If the Fed were to hold onto these assets, the Fed, and the banks that ultimately are the shareholders of the Fed, stand to lose trillions. 

What the Fed proposal would do would move these toxic nuclear waste assets from the Fed's balance sheet and into money market funds, in exchange for cash sitting in the money market funds.  The biggest problem is the Fed has no basis for valuing these assets other than the price it paid the banks for them, so at what price will the Fed value these securities in order to establish the market value basis for the repo transaction?   In other words, the Fed can stick a random price on these assets and swap them for the cash in the money market funds and say "trust us, we're Fed - we'll make you whole."  

Without going in-depth into the problems that could occur which might make the Fed's promise wothless, this proposal, if made effective, would expose money market funds to a significant, if not catastrophic level of risk.  To be sure, each fund individually has charter limits which would put a cap on the amount of cash the Fed could "repo" out of the individual fund and replace it with garbage assets.  However, these assets were fraudulently rated AAA in the first place and have no business being put into money market funds.  Money market funds are supposed to be basically risk-free funds in which investors "park" cash and earn a small amount of interest.

At best, this is a move by the Fed to justify draining a large amount liquidity from the system by using one of its monetary tools to drain cash from money market funds.  This has never been done before and is well outside of the traditional boundaries of repo/reverse repo tool used by the Fed with primary dealers. At worst, I believe this is a veiled attempt by Bernanke to move toxic assets from the Fed's balance sheet and onto the public, under the false pretenses of using money market funds  to drain liquidity from the system, rather than putting these near-worthless assets back on to the balance sheets of the Fed's primary dealers.

Hopefully this idea goes away. If it does become reality, I would not, under any circumstances trust this situation and would withdraw all funds from any money market funds you own and either move the cash into gold or into a short term Treasury bond fund.

Sunday, September 27, 2009


Any citizen who cares about this country should watch this question and answer sesson between Rep. Alan Grayson and Scott Alvarez, General Counsel for the Federal Reserve.  Alan Grayson is one of the very few highly intelligent Congressmen, in general, and one of the few who truly understands the financial and legal complications embedded in the system. 

At best, Alvarez was clumsily evasive of Grayson's questions - the worst case is that he also lied under oath.  Please note, the guy obviously drew a blank when Grayson asked him name just one primary dealer of the Fed - he was able to muster up the most obvious, JP Morgan, since JP Morgan himself founded the Fed.  He also was unable to directly answer whether or not the Fed manipulates the stock market.  Bon Appetit:

Here is Grayson's partial curriculmn vitae:  Grayson graduated from Harvard College, then received a law degree (with honors) from Harvard Law School as well as a Master of Public Policy from Harvard's John F. Kennedy School of Government. Grayson is an alumnus of the Bronx High School of Science.

Grayson went on to work as a judge's assistant at the D.C. Circuit Court of Appeals, working with current U.S. Supreme Court judges Ruth Bader Ginsburg and Antonin Scalia, and former U.S. Attorney General Robert Bork.

Friday, September 25, 2009

US large-loan bank losses triple to $53 billion

U.S. regulators said total losses from large loans at banks and other financial institutions nearly tripled to $53 billion in 2009, due to a deteriorating economic environment and continued weak underwriting standards. According to an annual report released by the four federal bank-regulatory agencies on Thursday, credit quality deteriorated to record levels this year.

Here's the question to ask:  are these big banks still paying out massive bonuses and paychecks because they avoided taking $100 billon losses (and eventually losses will be in the trillions - trust me on that) OR are they paying massive bonuses because they were smart enough to convince the Government to keep them going with trillions in taxpayer money? 

Here's the article link:   Banks Lose Billions, CEO's Earn 10's of millions

Thursday, September 24, 2009

In Case You're Wondering Why Gold Is Being Hit So Hard Today:

It's another obvious attempt to discredit the yellow dog as an omen of trouble and prop up the U.S. dollar, after the dollar almost fell off of a cliff yesterday:

PITTSBURGH, Pennsylvania (AFP) – The embattled US dollar is expected to come under scrutiny at a summit of developing and industrialized nations following China-led calls to review its role as a reserve currency."   Here's the link:   China Pushing To Replace the Dollar

Veteran traders and investors who have participated in the precious metals bull market over the last 8-10 yrs. should not be surprised by the action in the sector this week, as gold usually goes thru an ambushing ahead of big events like the G20 meeting.  We actually took the cash levels in our fund on Monday morning from 0% to over 20%, and have been actively hedging the downside with a short position in GDX.

Anyone with cash to deploy in the sector should be looking to put money to work during this pullback, as I can assure you that the big buyers in India and China will be buying physical gold with both hands while the fiat-fed lemmings in the U.S. and western Europe will once again have their physical holdings shaken loose by this overt market manipulation.

Wednesday, September 23, 2009


The truth of the matter is that gold and silver have been in a very quiet 10-yr. bull market, with probably another 5-10 years left.  But for anyone with any doubts, have look at the chart below, courtesy of Gluskin, Sheff and Associates and sourced from - the editing on the chart is mine:

(click on chart to enlarge)

Typically, the lowest risk returns in a bull market occur early, when the smart money quietly accumulates at substantially depressed price levels and then waits for big institutions to discover the sector.  Typically, the BEST returns in a bull market occur when the big funds are moving in and then the public discovers the sector and chases prices to the moon. 

It's not too late to get positioned in gold, silver and mining stocks in order to enjoy the ride, as big institutions are just now moving money into the precious metals sector and the general public and mainstream financial media is still clueless.

Tuesday, September 22, 2009

Is Obama Ignorant OR Hopelessly Corrupted By Wall Street?

This commentary from Paul Krugman was posted in Jesse's Cafe Americain yesterday.  I wanted to zero in on Krugman's recounting of statements made by Obama in Bloomberg News last week, as I had missed this, as I'm sure a lot of other people did as well:

I was startled last week when Mr. Obama, in an interview with Bloomberg News, questioned the case for limiting financial-sector pay: “Why is it,” he asked, “that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or N.F.L. football players?”

That’s an astonishing remark — and not just because the National Football League does, in fact, have pay caps. Tech firms don’t crash the whole world’s operating system when they go bankrupt; quarterbacks who make too many risky passes don’t have to be rescued with hundred-billion-dollar bailouts. Banking is a special case — and the president is surely smart enough to know that."

Let that sink in for a moment.  Did Obama really say that?  Looks like a verbatim quote.  I have to believe, given Obama's educational track record, that the President is not brain-dead.  That leaves only one other possibility. 

We know that two key Obama cabinet members and policy implementers, Larry Summers and Tim Geithner,  are inexorably tied to Wall Street interests.  In fact, the high profile blog,, has established a Geithner-to-Goldman clock, initmating that Treasury Secretary Tim Geithner will be rewarded with a lucrative job at Goldman Sachs after his tenure with Obama ends:  Geithner-to-Goldman Watch

Most people probably are unaware that Obama's chief of staff, Rahm Emanuel, made many millions as a Wall Street advisor at Wasserstein Perrella (now part of the Anglo-German bank Dresdner Kleinwort).  As a Congressman, he received millions in contributions from hedge funds.

It would appear from both word and deed that the whole Obama Administration is bundled up neatly and completely controlled by the dominant financial interests on Wall Street.  While Obama mesmerizes the hoi polloi with amusing appearances on The Letterman Show and grandiose speeches heavy on empty rhetoric and promises to be broken, Wall Street is busy stealing this country's money.  Is this the kind of Hope and Change that everyone voted for?

Monday, September 21, 2009

Will China Buy All of the IMF Gold For Sale? Will It Have the Opportunity To Buy It?

The IMF has finally approved the sale of 403 tons of its gold under the auspices of raising cash to help lesser developed countries.  The most recent Washington Agreement regulating Central Bank gold sales was drafted to incorporate the sale of IMF gold into the annual gold sales limits.  Interestingly, the ECB system is going to fall several hundred tons short of the 500 ton annual limit this year (and they fell well short last year as well), indicating a significantly reduced desire for European Central Banks to sell gold.  Also of note, the annual gold sales limitation was reduced from 500 tons to 400 tons, including the IMF sales.  Makes us wonder why they did this and keep in mind that, for the first time in nearly a decade, there were a couple of weekly periods in which the ECB system was a net buyer of gold...hmmm...

With regard to the IMF sales, let me point out a couple facts of which most observers are unaware.  First, the IMF gold is based on member pledges, as opposed to an outright physical allocation of gold.  The issue here is whether or not the sales of IMF gold will involve the outright sale of physical gold, which would require member countries to physically mobilize and sell their pro rata pledged gold, or if the IMF will settle for the cash equivalent.  In other words, will IMF member gold pledges be monetized with cash?

This is an important issue with regard to whether or not the market has already discounted into the price of gold an expecation of a big physical sale of gold by the IMF.  If that's the case, then the market price already reflects the very well telegraphed and highly publicized event.

If it is the case that countries like the U.S. - with large gold pledge requirements and suspected reduced bullion stock on hand - decide to settle their gold pledge requirements with cash, then the market price of gold may actually move a lot higher once the market perceives that there will not be an actual physical sale of gold from the IMF.

This brings us to the question of China and American Barrick.  We know that China, in conjunction with India, has expressed interest in buying ALL of the IMF gold (I posted a link alluding to this several weeks ago).   And several analysts have suggested that the IMF gold sales would help enable Barrick to purchase the large quantities of gold required for them to close out its hedges, for which it just raised $4 billion in equity capital.

Based on  these two points, it is extremely probable that, contrary to the very shallow and ignorant analysis featured on CNBC and various publications and websites (e.g. Jon Nadler at Kitco, who's track record in analyzing the gold is beyond dismal), this official decision by the IMF to sell some of its gold may actually turn out to be extraordinarily bullish for the price of gold.  As Jim Sinclair ( has pointed out on several past occassions in reference to IMF gold sales:

"Selling of gold like this occurs only in bull markets and has historically been useless to stop the price increase. In fact in the 1970s these sales pushed gold higher by facilitating demand from huge interests, and will do so even more so now."  Here's the   link

Sinclair has also pointed out that the last large sale of gold by a Central Bank - the 400 ton sale by the Bank of England in 1999 - 2000, marked the absolute bottom of the bear market in gold and start of the current 8-year run in gold. 

It will be interesting to see how these issues surrounding this sale of gold by the IMF unfolds.  I would point out that China and a few other large buyers of gold now have the expectations of being able to purchase a big quantity of gold from IMF at one price without causing a big spike in the price of gold.  If it's the case that the IMF accepts cash to settle member country gold pledges rather than actually physically selling any gold, expect the price of gold to take off to much higher price levels as large buyers scramble to fulfill expectations that were not met by the IMF.

Either way it is quite clear, at least to me, that this move by the IMF marks the second stage of the great bull market in gold (and silver).

Friday, September 18, 2009

Taxpayer Bailout of the FDIC on Deck...

"The Federal Deposit Insurance Corp. is considering tapping a Treasury Department line of credit as the agency examines ways to replenish a reserve fund depleted by 92 bank failures this year, Chairman Sheila Bair said."  Here's the link:   Open Up Your Checkbook, People

Some things to consider:  Anyone find it strange that every week only 3 or 4 banks are closed?  I know for a fact that the Government has the manpower to shut down only 3 or 4 per week, although hundreds need to be closed down.   When a bank is closed, you need manpower FOR EACH BANK BRANCH to clear out all employees, secure the vault, secure the books, secure the cash and guard the door, plus all the beancounters to go over the books.

But it's not only lack of manpower, the FDIC is dragging its feet on closures to conserve cash, presumably praying for some kind of economic miracle.  But the fact of the matter is that 100's possibly 1000's of banks need to be closed down or rescued and this going to be a multi-trillion dollar exercise.  At some point, we may actually face a bank holiday in order to prevent an inevitable run on the banks.  My advice would be to keep minimal cash balances at your local bank - your bank could be next - and move as much money as possible into gold and silver.

Prediction:  Wells Fargo will be the next big bank to blow up.

What Is The Message of the Market?

Is some kind of economic/financial disaster brewing?  Since no one in the media is commenting on what is going on in the chart below, I'm assuming that no one is paying attention to the rate on 30-day Treasury money,  which has collapsed almost to zero:

(click to enlarg)

Why is money flooding into the relative "safety" of 30-day Treasuries (perhaps part of this money is flowing from the 10's of billions of dollars in stock being sold by corporate insiders the past six months).  Why is gold holding and consolidating it gains above $1000?   Inquiring minds would like to know andI'm sure we'll find out very soon if the correct message is coming from the stock market or the bond some gold?

CNBC Viewership Is Down 37%

I made the statement back in 2002, after the market fallout from the bursting of the tech/internet bubble, that ultimately a true bottom in the stock market will not reached until CNBC is out of business and off the air.  First, the moronic broadcasters and the network's perma-bull propaganda will lose all credibility;  second, most the network's sponsors will be bankrupt; and, most important, the lemming-like, brain-dead audience will lose all interest in the stock market.

Here's the link from

CNBC's Audience Is Fading Fast...

Thursday, September 17, 2009

Banana Ben Bernanke Is A Complete Idiot And/Or A Pathological Liar

A couple days ago Fed Chairman Bernanke proudly proclaimed that the recession in this country is most likely over.  This was a few weeks after he arrogantly took credit for saving the world from global financial disaster. 

Let's look at a couple datapoints to see validity of Bernanke's boast:

1)  Yesterday, the CEO of Chrysler and Fiat said that auto industry sales are off 19% so far in September after the cash for clunkers program ended:    Auto sales

2)  Fed Ex reported today that their revenues were down 20% in the most recent quarter vs. the same quarter a year ago.  Fed Ex is considered a key indicator of economic activity.  Or perhaps this is what Bernanke was looking at...

3)  Credit card defaults usually track unemployment,  rose to a 26-year high of 9.7 percent in August.

So the question remains, is Bernanke a complete idiot, an ivory tower geek who is blind to the facts or just completely corrupt?  Clearly, if you watch the video footage of his past statements about the economy from an earlier post   Link, it's hard believe ANYTHING that comes out of Banana Ben's mouth.  It brings to mind an old rhetorical riddle about traders from my Wall Street days:  "Question:  how do you know when Bernanke is lying? Answer:  when his lips are moving."

“The last duty of a central banker is to tell the public the truth.” Alan Blinder, Former Vice Chairman of the Federal Reserve

Wednesday, September 16, 2009

Newmont Mining Raises A $2 Billion Dollar Blind Pool

In what I believe is the largest bond deal ever issued by a mining company, Newmont just raised $2 billion in what essentially amounts to a blind pool, as they have not indicated any specific use for the proceeds. Here's the link to the announcement:

Ten-year and 30-year Tranches - High Credit Quality Pricing

What is most significant about this deal is that it shows just how much money is on the sidelines and looking for investment opportunities in the precious metals and mining stock sector.  When I heard about this deal coming yesterday I expected, based on my experience in the bond market, maybe a $500 million deal.  The fact that big money is willing to give $2 billion to Newmont on these terms is a harbinger for the kind of capital that is starting to rush into the sector.

The bull market in precious metals and mining stocks is just beginning to enter its second stage.  If you position yourself correctly with gold, silver and mining stocks you will experience a change-of-lifestyle increase in wealth.

Tuesday, September 15, 2009

Hyperinflation Nation: "by the time people start preparing for hyperinflation, it will be too late"

This 3-part youtube series takes about 25 minutes to watch.  Although we might not be feeling the "price" effects of outright inflation, the underlying causes of inflation/currency devaluation are percolating beneath the surface and price inflation will hit hard when we least expect it.  Here's the links:

Part 1   Part 2   Part 3

After watching this, I don't think you will trust ANYTHING that comes of Banana Ben Bernanke's mouth.  In my estimation, Bernanke is either incredibly stupid, inept or corrupt - maybe a bit of all three.  Watch the videos and decide for yourself.

Is The Commerce Department Fabricating Its August Sales Numbers?

The headlines for the Government-reported retail sales number loudly announced that "retail sales jumped 2.7% in August."  Remember that this is a month to month number, so the August sales number is being compared to the July sales reading.  NOT in the headline everyone sees:  sales for August 2009 were down 5.3% compared to August 2008.  So much for the green shoots of sales growth. 

At first blush, this number for August is not very good when you consider that the Government spent close to $3 billion of your money in August trying to stimulate automobile sales.  This worked to some degree, as auto sales for August rose 10.6%.  That's compared to July.   The other large component of the 2.7% sales increase was the price of gasoline.  In the second half of July, the price of gasoline jumped over 8%.  The Government number does not strip out this inflation effect from its headline-reported number.

But the biggest question I have about the Government's number, and its ubiquitious - if not nefarious - "seasonal adjustment," is that the reported number for August in NO WAY is consistent with the sales numbers reported by big retailers for August OR the rapidly declining trend in consumer credit, which was down over 10% in July (not yet tabulated for August).  The news release I read reported "busy shopping malls in August."  Here are big mall retailer numbers for August - you decide:

Abercrombie and Fitch -23%, GAP -2%, Hot Topic -7%, JC Penney -5.6%, Limited -4.6%,
Macy's -8.5%, Neiman Marcus -15.3%, Nordstrom -3%, Saks -18.2%

Get the picture?  And we don't have the consumer credit number for August, but consumer credit outstanding has been dropping like a rock since the beginning of 2009.  Here's chart that shows consumer credit vs. consumer spending (click to enlarge):

I know several people who told me they actually had their credit card lines cut last month.
Is there any reason to believe that consumers miraculously decided to take on more revolving debt in August, other than to buy a taxpayer-subsidized car?  We sure didn't see that, if it really happened, in the big retailer numbers in August.  This just in:  Mastercard announces that their processed volumn was down 8% in July and August - more proof the Government sales number is b.s.: 

Article Link

I seriously doubt that the August retail sales numbers, in reality, showed anywhere near the amount growth as reported by the Government's Commerce Department.  What I would like see is how the Commerce Department calculates its seasonal adjustments AND the numbers being fed into that calculation.  As it stands now, based on the evidence I presented above, I would say that the Government is full of you know what.

Monday, September 14, 2009

Americans Have Been Taken Hostage - Dylan Ratigan

This post is sourced from and should be read carefully by everyone, especially by those who believe that they voted for the man in office who was supposed to CHANGE our system for the good of the citizens.  So far it looks like that HOPE has gone up in a big cloud of empty rhetoric, grandiose speeches with no content and a long list of broken promises:

"As we approach the anniversary of the bailouts for our banks and insurers -- and watch the multi-trillion taxpayer-funded programs at the Federal Reserve continue to support banks and subsidize their multibillion bonus pools, we must ask if our politicians represent the interests of America? Or those who would rob America of its money and its future?"   Here's the link:

This Is Haunting In Every Respect...

I wanted to link this post from Barry Ritholtz's Big Picture. The photo in the post should shock everyone into reality about the condition of the U.S. economy.  Next time you hear the idiots running our system, like Banana Ben Bernanke or Tiny Brain Tim Geithner, remark about how they saved our system and that we're on the road to recovery, think about the picture in this post, which says more than 1000 words about how ugly the economy is globally:

The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination – and is why your Christmas stocking may be on the light side this year (here's the link):

A Picture Says 1000 Words

Everyone got gold?

Friday, September 11, 2009

More On Today's Milestone in the Price of Gold

To begin with, the record weekly close over $1000 will get the attention of technically oriented investment funds this weekend. Expect heavy follow-through buying next week, barring some kind of unforeseen heavy intervention in the bullion market by the Fed/Obama Administration, in a desperate attempt to support the U.S. dollar.

I want to bring your attention to an excellent analysis posted on, in which the author presents an excellent case to be made that the public has yet to join in on the gold rally based on the fact that the assets in the Rydex Precious Metals fund have not increased at all during this move over $1000. Here, the link to his work and it's a must-read:

Gold Is Going Much Higher While the Public Snores

Milestone in the gold bull market

Today was the first ever weekly close over $1000/oz. on the Comex.  The gold bull market to date has been very quiet and powerful over the past 8 years.  Nominally, gold is up 400% from bottom to now ($250 to $1000).  It's averaged 16% per year annually.   And it has done all of this without the benefit of inflation.

This chart from pretty much says it all (commentary is mine):

(click to enlarge)

The big institutional money is just now discovering the precious metals sector.  Anyone who does not climb aboard this train now may be waiting for a pullback to enter that doesn't occur until gold and the mining stocks are at a much higher level.

Thursday, September 10, 2009

But Where Are The Clients' Yachts?

We recently looked at a new client's IRA holdings. Raymond James was the brokerage firm. When I opened up the statement and looked at it, I was quite stunned by the mess I found. The IRA was down 42.5% in 2008. Fortunately for the client, the account managed to clawback 13% YTD thru July 31. However, given the heavy overweighting of the fund in small-cap stock funds, the best index to compare this portfolio to would be the Dow Jones Small Cap Index, which was up 17.6% YTD thru 7/31. So the broker is taking excessive risk with his sector selections, and the performance of the fund lags its benchmark index by a considerable amount.

What I found particularly horrifying was that roughly 50% of the fund was put into mutual funds with a 5.75% up-front load (commission). In addition, several of these funds with up-front commissions also carried very large ongoing management and expense fees. In other words, broker commissions and mutual fund fees are eating this account alive. One of the funds, a Pimco commodity-based fund, actually has 71% of the fund in Treasuries and agencies (mostly Treasuries). Why on earth would anyone volunteer to pay 5.75% UP-FRONT to invest in a fund that is mostly U.S. Treasury bonds? Not only that, the fund also charges a marketing fee (12b-1) and has a high expense ratio (1.24%). Talk about an investment which typifies the old question: "but where are the clients' yachts?"

Just as bad as the high fees was the way in which the portfolio was invested. The sector selection was rediculously overweighted in the small-cap sector. In fact, this IRA account represents a high percentage of the client's net worth, and is thus inappropriately diversified into risky stocks. To begin with, there were 17 different mutual funds, most of which were some form of small cap/mid-cap fund. There was a very high overlap of the same stocks listed in the top 10 holdings of these funds (the usual suspects - Microsoft, Dell, Cisco, Apple, Google, etc.) Anyone who has studied portfolio theory knows that a portfolio with 17 mutual funds has absolutely no chance in hell of outperforming the stock market.

To be blunt, for all the fees Raymond James is sucking out of this IRA account, Raymond James is providing absolutely ZERO in the way of value-added money management skills. The client would be better off having the account invested in the SPY ETF (S&P 500 ETF which replicates the performance of the S&P 500 with almost no fees).

Why is the client paying a lot of money for Raymond James to manage this account? Answer: because Raymond James knows that the client is unsophisticated in investments and has no clue that these kinds of fees are being charged, that the fund is vastly underperforming comparables on a risk/return basis AND that there are many low-fee alternatives.

This IRA fund is nothing but a "killing field" of fees with no regard for risk or performance. Quite frankly, I could not sleep at night knowing that I had clients with a substantial portion of their asset-base invested inappropriately and in a way which is designed to skim a high degree of fees off of the account. We have found this story to be quite common, especially where the financial advisor works for a big bank/brokerage like JP Morgan, Citibank/Smith Barney,Wells Fargo/Wachovia, Raymond James, A.G. Edwards as well as with "independent" registered advisors like LPL Financial.

The moral of the story is that everyone who is reading this and does not manage their own money needs to sit down with an "outside" independent financial advisor with a lot of experience, and a reputation for being ethical, who can go over how their account is currently being invested.

Wednesday, September 9, 2009

The U.S. Dollar Is Now Officially In Trouble

In an article published Sunday by the Telegraph-UK in London, and the content of which was not to be found anywhere near the mainstream media in the U.S., a former high level Chinese Communist Party official spoke quite candidly about the steps China is taking to protect itself from the catastrophically reckless fiscal and monetary policies being executed by the Fed and the Obama Administration:

"Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive, said Beijing was dismayed by the Fed's recourse to "credit easing"... If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.   China's reserves are more than – $2 trillion, the world's largest.  "Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets."   Here's the link:

China Alarmed By US Money Printing

Basically, through Cheng Siwei as an emissary of sorts, China has made three definitive statements:

1)  China has lost its patience with the U.S. fiscal policies and debt accumulation
2)  China has been, is and will be dumping U.S. dollars
3)  China is accumulating a massive amount of gold

With this in mind, let's take a look at a daily chart of the U.S. Dollar Index.  You will see that the dollar has now lost the line of technical support which was established back in December, when the dollar engaged in a sharp rally higher, although a rally which was not in the very least supported by fundamental factors:

(click to enlarge)

Unfortunately, the U.S. is in an economic and financial predicament which would not allow the Fed and the Government to take the drastic measures required to turn around the U.S. dollar without throwing the whole country into a very deep Depression.   Of course, the very policies and actions being taken to avoid that outcome will, with 100% certainty, lead to the same outcome - only it will be even worse.

This is not lost on Central Banks and investors who are actively buying gold and silver.  Gold is on the verge of making what could be the start of a historic move higher.  For anyone doubting this, would you rather place your bets alongside China, India, Russia and several very large U.S. hedge funds, or on the clowns and bubbleheads rolled out on CNBC and Bloomberg and other media outlets who have been criticizing gold as an investment ever since it broke through $300 back in 2001? One of the world's largest gold miners, American Barrick, has definitively placed its bets on higher gold (see earlier post).

Tuesday, September 8, 2009

American Barrick (ABX) Is Doing What? Did I Read That Correctly?

American Barrick, one of the world's largest mining companies, announced today that they will issue stock to raise $3 billion in order to entirely eliminate their very infamous gold hedge contracts.  These hedges were put in place several years ago when gold was around $300 per ounce.  Here's the news link:

This Tells Us Gold Is Not Going Lower

This is an extraordinary move considering that Barrick is using $3 billion in cold, hard shareholder cash and is taking a total charge of $5.6 billion, in what amounts to public admission of the Company's failure to anticipate the ongoing bull market in gold and silver.   If Wells Fargo were to address its $122 billion pay-option-ARM portfolio in this manner (let's assume it's worth 50 cents on the dollar, which is probably generous), they would announce a $61 billion write-down, to be immediately funded with a $32 billion stock issue.  I guess if you're a big bank, it's just easier to ignore the loss, take $30 billion from the taxpayer, pay out several billion in bonuses and announce on CNBC that "it's all good."

What's even more extraordinary about this move is the implied message that Barrick is sending to the world about where they think the price of gold is headed.  They wouldn't be spending $3 billion in shareholder capital upfront to get rid of these hedges if they thought the gold bull market was over and the price was about to fall.  This move by Barrick is a signal to the world that they believe the price of gold is going much higher in price and they are willing to spend several billion in order to reap to full benefits of much higher gold prices in the future.

For anyone doubting the legitimacy of the gold bull, would you rather place your faith in the idiots on CNBC or in the smoke signals being sent globally by one of the world's largest gold miners?

Monday, September 7, 2009

As Banana Ben Prints Money, China Is Buying Gold

"The US Federal Reserve's policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy...The comments suggest that China has become the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction"

China Buys While Banana Ben Fiddles

Remember, the ONLY way to own gold is to either buy it and hold it yourself, or through an invesment fund that verifies physical custody.   GLD, IAU, SLV, SIVR and many others do not provide verified custody - they are potentially fraudulent gold and silver leasing operations.  This is not something to take risks with.

90% Of All New Home Loans Are Now FUNDED or GUARANTEED By The Taxpayer

You can draw your own conclusions about how you feel about this fact.  Here is the link to the Washington Post article, in case your local newspaper forgot to report this:

Taxpayers Funding Homes For Everyone Now

Let me remind everyone that in addition to buying your new neighbor's house, this means you are also funding the commissions being payed to real estate brokers, fees skimmed mortgage banks and huge salaries and bonuses linked to all of this activity being payed out to Wall Street and homebuilding company CEO's.   

Next time you see the smiling faces of Banana Ben Bernanke, Obama, Geithner, and Larry Summers on t.v., be sure to remember that they are the ones implementing this policy of taxpayers paying for everyone's new homes.

Friday, September 4, 2009

Must-Watch Video From Peter Schiff On Inflation/Gold

Peter Schiff, who is mounting a lay-up Senate campaign against that crook, Chris Dodd (D-Connecticut), comments on the recent move being made in the gold and silver market. One trend going on, which I have pointed out, is that the buyers are finally challenging the short sellers, especially when it comes to demanding delivery of the underlying physical metal. He also opines, and is consistent with my view, that the next big drop in the stock market will be accompanied by a sell-off in the U.S. dollar and big flight to gold and silver for safety.

At the end he has some notable comments on the recent move by the Chinese Government to encourage its citizens to buy gold and silver: "They want their citizens to buy gold and silver...they want their citizens to own real money...They know gold and silver are going higher - they know it's a sure-thing because they are planning on dumping the dollar...The U.S. Government is telling its citizens to put faith and trust in little bits of paper that we're printing."    Enjoy:

Thursday, September 3, 2009

Gold: BOOM Goes the Dynamite

(click to enlarge)

Is Banana Ben Doing Hallucinogenic Drugs?

I'm not sure where he gets off telling the world that he saved us all from global financial nuclear meltdown, he can't even diagnose the state of the U.S. economy.  Anyone see "green shoots" or "signs of recovery" in these numbers?  And don't forget, August is the heart of "back-to-school" sales for retail.  These were big retailer August same-store-sales released today:

Saks -19.6%, JC Penney -7.9%, Nordstrom -7.6%, Target -2.9%, Abercrombie Fitch -29.7%,
Macy's -8.1%,  Dillards -12%, Gap -3%, Limited -4%.

And don't forget that auto sales for August released earlier this week were much worse than expected, and were quite negative for GM and Chrysler.  The economy is still spiraling down, despite the $23 trillion in direct Govt/Fed stimulus and toxic debt guarantees.  The only thing Banana Ben Bernanke saved, with help from Obama, Geithner, and Larry Summers, was massive bonus packages for Wall Street.

Wednesday, September 2, 2009

Banana Ben [Bernanke] Strikes Again

I wanted to post this commentary in case anyone who regularly surfs this blog did not come across it in cyberspace.  The author's nickname of "Banana" in reference to Bernanke refers to the fact that the monetary inflation and Government debt levels in this country liken the United States to the "Banana" republics of Central and South America during the 1970's and '80's, before they collapsed economically and politically, consumed by hyperinflation, Government debt default and civil unrest:

The economic reality is that when a country owes a tremendous debt; it becomes less burdensome and easier to pay off under an environment where the currency is losing value. Of course the citizens of that same country become poorer while they are taxed without their consent through inflation. It is also true that the holders of that country's debt become victims as well.

Meet Banana Ben Bernanke

The best chance an individual has to survive the pernicious policies of Banana Ben is to move as much cash as possible into physical gold, silver and mining stocks.  Do not use GLD or other paper investments as your method of investing in gold and silver - they are paper traps.

Tuesday, September 1, 2009

It's Confirmed: Cash 4 Clunkers Was Another Government Failure

Auto sales for August were released today.  Overall, the SAAR (Seasonally Adjusted Annual Rate of sales) was boosted for the month of August, although it fell well below expectations.  Goldman Sachs had been forecasting SAAR for August would be 15.5% - it came in at 13.7 million (this is the annualized rate of sales based on actual sales for the month).   Worse yet, the numbers for the domestic producers, Ford, GM and Chrysler, fell way below expectations.   Ford's sales rose 17% in August vs. 2008, but a 38% rise was anticipated.  GM's sales dropped 20% from a year ago and Chrysler's fell 15%. 

How did this happen?  Here's the top-10 cars sold by brand, according to   1) Toyota Corolla  2) Honda Civic 3) Ford Focus 4) Toyota Camry 5) Toyota Prius 6) Hyundai Elantra 7) Ford Escape 8) Honda Fit 9) Nissan Versa 10) Honda CR-V

You can see the problem here.  U.S. taxpayers largely subsidized the new car sales of Toyota, Honda, Hyundai and Nissan.  And not only did the sales goals of C4C fall well short of expectations, but like every other heavily subsidized sales program, C4C has "pulled" future sales into a few short weeks. The question going forward is not whether or not the sales rate will drop off, but by how much.  Several auto companies announced ramped up production based on August sales.  But to whom will they be selling that production?   I anticipate another cliff-dive in the economy this fall.

One more issue I'd like to address.  I would like to see the credit scores of those who actually purchased a vehicle using the C4C program.  In all likelihood, the average person who could have benefitted from turning in a late-model gas-guzzler most likely did not qualify for financing, even with the $4500 credit.  And I suspect that a large portion of the buyers who participated would have been able to buy a new car and qualify for financing even without the $4500 kicked in by the taxpayer.  Seems a bit ironic that Obama's program to subsidize automobile purchases and stimulate sales at Ford, GM and Chrysler, benefitted higher income Americans and foreign car manufacturers - all at a multi-billion dollar cost to the taxpayers.