Silver in Backwardation in London, silver OI refuses to fall/margin levels rise in silver/gold

Silver in Backwardation in London, silver OI refuses to fall/margin levels rise in silver/gold

Trader Dan Comment’s On Greenspan’s Gold Standard

Posted: Jan 22 2011     By: Dan Norcini      Post Edited: January 22, 2011 at 12:16 am
Filed under: Trader Dan Norcini

Friends,
I want to go on record with comments about Alan Greenspan’s remarks about a gold standard that hit the news today. That this man, who has rightly been criticized for speaking in riddles so that his hearers could take from his comments that which they wanted to hear him say, has now apparently changed his tune once again and yet can do so without the least bit of remorse is infuriating to me. He basked in the accolades of his peers in the financial community being acclaimed, “The Maestro”, because of his supposed ability to deal with financial crises and keep the US economy humming along in spite of it all come hell or high water. Yet we all know that his manner of so doing was to ramp up the printing presses and have them running at warp speed, flooding the system with liquidity at the first sign of any potential danger signs. Whether it was Mexico, or Russia, or Y2K, or the breaking of the tech stock bubble , his solution was always the same, lower interest rates and increase liquidity.
It was under his watch that the stock market bubble burst at the beginning of the last decade which up until it did, he praised as the outcome of increases in productivity. It was he that praised the gigantic derivatives market as another arrow in the quiver of productivity until we all watched it disintegrate into a heap of goo as Lehman Brothers went under, setting off a cascade of defaults and credit deleveraging, the effects of which are still being felt today.
It was his policy of keeping interest rates artificially low that blew one bubble after another which moved from one sector to another, first in stocks, then in housing and then finally in commodities until they all burst in succession.
Yet, now that he is out of his office and no longer has to be the politician and the Central Banker, he can call for a return to some mechanism to hinder his successor from the creation of unlimited amounts of fiat currency in order to prevent the “deleterious” effects of inflation, as he terms it. Why did he not use his pulpit during his tenure to advocate such a thing as a return to some sort of gold standard or currency board? He shares as much blame as any for the condition of the US Dollar and the horrific mess that has been created by Federal Reserve policies over the last decade. While Chairman Bernanke is engaging in Quantitative Easing, he is only following the policies of his predecessor to their logical conclusion.
Here are the former Chairman’s own words in Congressional Testimony taken in July, 2005 in response to a question and some comments posed by Congressman Ron Paul. Note his remarks about returning to a gold standard a mere 6 years ago and contrast those with his recent comments of today. Note also the absurd comment in the last sentence that Central Bankers had been acting responsibly:

“But as I’ve testified here before to a similar question, central bankers began to realize in the late 1970s how deleterious a factor the inflation was.
And, indeed, since the late ’70s, central bankers generally have behaved as though we were on the gold standard.
And, indeed, the extent of liquidity contraction that has occurred as a consequence of the various different efforts on the part of monetary authorities is a clear indication that we recognize that excessive creation of liquidity creates inflation which, in turn, undermines economic growth.”

So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard?
And the answer is: I don’t think so, because we’re acting as though we were there.

“Would it have been a question at least open in 1981, as you put it? And the answer is yes.
Remember, the gold price was $800 an ounce. We were dealing with extraordinary imbalances, interest rates were up sharply, the system looked to be highly unstable ­ and we needed to do something.
Now, we did something. The United States ­ Paul Volcker, as you may recall, in 1979 came into office and put a very severe clamp on the expansion of credit, and that led to a long sequence of events here, which we are benefiting from up to this date.
So I think central banking, I believe, has learned the dangers of fiat money, and I think, as a consequence of that, we’ve behaved as though there are, indeed, real reserves underneath the system.”

Alan Greenspan today:

"We have at this particular stage a fiat money which is essentially money printed by a government and it’s usually a central bank which is authorized to do so. Some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or a currency board, because unless you do that all of history suggest that inflation will take hold with very deleterious effects on economic activity… There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard."

Alan Greenspan 40 years ago:
"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property
rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard."

Trader Dan Comments On This Week’s COT Report

Posted: Jan 21 2011     By: Dan Norcini      Post Edited: January 21, 2011 at 10:54 pm
Filed under: Trader Dan Norcini

Dear Friends,
This week’s analysis of the Commitments of Traders reports is a continuation of the recent pattern we have seen with Managed Money continuing its exodus from the long side of the gold market as well as some fresh selling from that category with new short positions being established. This category does not have a good track record of making much money while attempting to play the downside in gold. They have a habit of selling bottoms.
They are now at levels last seen in May 2009, 20 months ago when it comes to long side exposure. For comparative purposes, gold was trading at $920 when they were last at this level.
The commercial class continues to cover shorts into long side liquidation further reducing their overall exposure to the short side. Ditto for the swap dealers which for gold are basically the commercials under a different guise.
The general public, having bought the top, continues to exit and is coming down to more reasonable levels as suggested would need to occur in last week’s report at this site. We might need to bleed out another 10,000 of those longs in this camp before we set a bottom. A lot of them were probably caught today and Thursday after the battering gold took so their numbers are lower than today’s report suggests seeing it only covered the action through Tuesday of this week.
The “Other Reportables” camp still seems to me to be a bit heavy on gold exposure but their number of longs is slowly moving lower as some in their camp take out some fresh short positions. Maybe another 10,000 – 15,000 shift needs to occur here.
All in all, the report confirms the same old familiar pattern that we have seen in this market for nearly ten years now during each episode of price weakness.
Managed Money is still the big force in our markets today so until they cease liquidating longs we can head lower but once this camp levels off and returns to the long side, the next leg higher will commence. I like the fact that their numbers are so low on the long side yet gold is holding at a relatively high level, down only some 6% or so from off its recent peak even as their overall net long exposure has been cut nearly 100,000 contracts from September of last year.

Click image to enlarge today’s COT chart with commentary from Trader Dan Norcini

In The News Today

Posted: Jan 21 2011     By: Jim Sinclair      Post Edited: January 21, 2011 at 10:25 pm
Filed under: In The News

Jim Sinclair’s Commentary
Four so far this weekend.

Bank Closing Information – January 21, 2011 
These links contain useful information for the customers and vendors of these closed banks.
United Western Bank, Denver, CO
The Bank of Asheville, Asheville, NC
CommunitySouth Bank & Trust, Easley, SC
Enterprise Banking Company, McDonough, GA
http://www.fdic.gov/




Jim Sinclair’s Commentary
Ayn Rand, forgive me!




Dear CIGAs,
Gold today is a perfect example of what our present markets are about.
The US dollar pulls back to the underside of a box formation and falls away. That is a classic bearish formation and the algorithms sell the dollar heavily.
Gold and gold shares injured by the Euro holders of gold liquidating as the euro rises draws a negative technical picture, and the algorithms sell gold and gold shares.
Algorithms have no mind.
Algorithms are exercises in advanced mathematics.
Algorithms will turn and buy gold the instant the fundamental guys say enough.
What has injured the field will benefit the field. For me, on my speculative side, it is an opportunity in calls on the various gold shares that have performed well over the last year as the sheeples sell and the option professional try to take them out at pennies.
On an unrelated topic, what if your town goes broke? What do you do with your garbage? I make a lot of mulch, and have a really well placed burn pile. Think about it.
Margin rates move higher, always, in a bull market. It is good, not bad news for price. Some day the public may learn that, but do not hold your breath. Some day commentators in our gang may learn that. Do not hold your breath for that either.


Jim Sinclair’s Commentary
Nations do not go broke. Nations do not default. Nations have a blank check to write with no balance.
The currency collapses. States do go broke.

A Path Is Sought for States to Escape Their Debt Burdens By MARY WILLIAMS WALSH
Published: January 20, 2011
Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.
Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.
But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.
Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.
Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.
More…




Jim Sinclair’s Commentary
Taxes in all states have but one way to go and that is up.
Now isn’t that another tax on consumers along with energy and food?
Economic recovery? You have to be kidding.



Jim Sinclair’s Commentary
The euro rises and euro gold speculators bail out. The Comex floor traders and gold banks take advantage and drive gold lower.
Specs of the Comex vomit, margin clerks go wild and nations turn buyers. That is the real story.
Relax.

Russia to Raise Gold Share in Reserves, Eyes Adding Yuan, Ulyukayev Says By Maria Levitov – Jan 20, 2011 9:45 AM PT
Russia’s central bank will raise the share of gold in its international reserves, the world’s third largest, from about 8 percent, First Deputy Central Bank Chairman Alexei Ulyukayev said.
"We’ve increased our investment in gold during the last several years and we will continue to move in the same direction in the future," he said in an interview in London. "Gold is a natural part of reserves."
Russia, which aims to diversify its reserves, started adding the Canadian dollar and plans to invest in the Australian dollar. The central bank has almost doubled the share of gold in the past three or four years, according to Ulyukayev. The stockpile comprises 47 percent U.S. dollars, 41 percent euros, 9 percent British pounds, 2 percent Japanese yen and 1 percent Canadian dollars, according to the central bank.
The bank won’t begin to add the Australian dollar until the middle of the year, Ulyukayev said on Dec. 1. Policy makers may also add new currencies to the reserves, with the Chinese yuan a potential target once it becomes fully convertible.
"We are trying our best to diversify the reserves" and investing in managed currencies is difficult, Ulyukayev said today. "If the capital control regime will be changed, in the People’s Republic of China in this case, we can invest in that currency also."
More…




Jim Sinclair’s Commentary
States and municipalities can and will go broke. The economic impact will act to foil QE. That will result in QE to infinity regardless of MOPE.
Washington and the Fed will backdoor rescue by buying state and municipal debt, a form of QE.

Bankrupt Vallejo May Repay Its Creditors as Little as 5 Percent of Claims By Alison Vekshin and Steven Church – Jan 19, 2011 12:41 PM PT
The city of Vallejo, California, proposed paying some creditors as little as 5 percent of what they are owed, making it the first general municipality that would fail to fully repay its debts in bankruptcy.
General unsecured creditors would collect 5 percent to 20 percent of their claims under the plan of adjustment filed late yesterday in U.S. Bankruptcy Court in Sacramento, the state capital.
No city or county has used federal bankruptcy laws to force creditors to take less than they are owed, according to Bruce Bennett, the lead lawyer for Orange County, California, when it filed the biggest municipal bankruptcy in the U.S. in 1994.
Vallejo’s plan assumes the city can’t provide essential services, like police and fire protection, while also paying its debts, he said. Should the city succeed, the case “may become an important precedent,” Bennett said in an interview.
The creditors, who include retirees and former employees, would be paid $6 million over two years. The plan must first be voted on by creditors before U.S. Bankruptcy Judge Michael S. McManus decides whether to approve the proposal.
More…

Jim’s Mailbox

Posted: Jan 21 2011     By: Jim Sinclair      Post Edited: January 21, 2011 at 5:08 pm
Filed under: Jim's Mailbox

Jim,
Didn’t you say in the 2006 Formula this would happen! Of course the sheeple keep getting excited over Google and the main barometer for the economy! Where is the outrage!
CIGA Craig

Dear Craig,
The equity market is a being of liquidity, not facts. The same thing that will take gold hyperbolic will take equities hyperbolic.
Buying a good break by calls is a nice speculation.
Buying calls on the gold shares that have performed in this reaction is another good speculation.
Regards,
Jim

Jim Sinclair’s Commentary
Here is REAL business, not gleeful talking heads, government releases or unwarranted expectations. CIGA Marc is in business in the heart of America. He is a businessman taking risks and feeding his family. He represents the truth, not like the fat cat obnoxious salesmen cheerleaders that represent MOPE.

Dear Jim,
As you know my company sells to a host of diversified businesses of both large and small statures.  We are not a large company in terms of sales but our client base consists of local government agencies, airlines, hotels, general contractors, roofing companies, property managers and others.  In addition we have a significant amount of local customers who own other small businesses, restaurants, retail shops, etc. and come in contact with a number of sales representatives serving a diverse customer base that in some cases have national reach.
For us the 4th quarter of 2010 was above that of 2009 in terms of gross sales but the cost of goods had also increased substantially which had an impact on margins and profitability.  In my research many companies started to increase prices in the second half of 2010 which would show up as increased gross revenue, however it does not necessarily mean more widgets are being sold.  To date in 2011 our gross revenue is above that of the first few weeks of 2010 but unit sales are about flat suggesting that the sales gains are primarily due to increased prices.
In my discussion with customers and vendors I encounter a great deal of frustration.  Basically there is an expectation that because weak business conditions have existed for so long that there must be a turn soon, however I have not encountered many business people who have actually experienced that positive turn.  I have very few examples of businesses that are hiring on any more than a short term basis and as you can see below there continues to be incidents that suggest the economy remains much weaker than MOPE would like us to believe.
A customer of ours who owns a couple of private (non-franchise) fast food restaurants is closing the last of his establishments.  He states the reasons as having to do with the economy, the rising costs of doing business and the difficulties of dealing with the city.
A salesman representing a paint sundries company informed me that he has written only six orders so far in 2011.  If people are not buying brushes, handles and roller covers I think its somewhat safe to assume that they are not buying paint either. 
A 3-store hardware and building materials operator had recently opened a new store, after 9 months they have recently closed that store.  I am aware of some goods and displays that are on sale for roughly 30% of wholesale cost that have yet to find a bid.
So as you can see, regardless of what we might hear on television or in some loudly promoted statistic business conditions are in my opinion at best suffering from revenue growth via the inflated selling price of their goods.
Your Friend,
CIGA Marc

Lenders See Little Choice: Layoffs CIGA Eric
Couple of observations:
(1) Slower revenue growth due to lower loan demand suggests the economic recovery and stock market rally is more a product of infinite liquidity and accounting flexibility than increased private investment and aggregate demand.
(2) The public sector following the private sector’s instinct to survive will announce even greater layoffs without ‘creative’ Federal assistance.
Headline: Lenders See Little Choice: Layoffs
The banking industry, racked by the financial crisis and facing slower revenue growth, is starting to cut costs increasingly at the expense of jobs.
Wells Fargo & Co. (NYSE: WFC – News) and American Express Co. (NYSE: AXP – News) said Wednesday that they would take action to reduce expenses and lay off employees to become leaner. PNC Financial Services Group Inc. (NYSE: PNC – News) and Fifth Third Bancorp (NYSE: FITB – News) said Thursday they too want to become more efficient.
For Synovus Financial Corp. (NYSE: SNV – News), that means cutting jobs. The bank said last week it would eliminate 850 jobs, 13% of its staff, and close 39 branches to save $100 million in expenses a year.
State Street Corp. (NYSE: STT – News) reiterated Wednesday that it is on track to save as much as $625 million in expenses through 1,400 job cuts to be completed this year. Barclays Capital laid off 600 employees world-wide earlier this year.
Source: finance.yahoo.com
More…