Bearish News

In the clip below, Mr. Faber says gold and silver may fall over the next 3 months, as the end of QE2 slows the flood of Fed liquidity. He “wouldn’t short” the metals, and is “accumulating gold”.

Offers fascinating perspective on Chinese reverse-merger stocks, and how the situation is similar to early industrial America where, “the foreigners got fleeced, constantly”.

He reiterates that QE3 will come, but not as early as some would like. The Fed needs markets to fall a bit first. Oil (consumers feel most), gold/silver (unofficial inflation gauges), stocks (EEK – My 401k is dropping, print!). Worth watching (shot last week):

I do wonder how low silver could go this year, before QE3 comes to the rescue fall/winter (best guess). In 2008 silver surpassed the $20 mark, only to be knocked back down to ~$9 by the credit crunch. Could silver retrace as much this time? I don’t think it’s all that likely, or I would’ve sold some physical.

Inflation is higher now, meaning the Fed will have a tougher time selling QE3. Will markets need to drop further, to compensate? Oil markets are buying the new deflation theme, thanks in part to that perfectly-timed strategic reserve release.

Then again, silver inventories are pitifully low at COMEX. Is a mass squeeze on naked shorts really possible? I don’t know. So many factors to consider.

Gold Daily and Silver Weekly Charts – La Douleur du Monde – Most Likely to Go Super Nova

By Jesse of Jesse’s Cafe Americain

“It appears that there is an undeliverable force heading towards an unmanageable object.”

At some point the shysters will lose control of the monetary papier-mâché which they have created. And the subsequent reaction could be epic, with the almost inevitable force of nature, like a tsunami rolling in.

Only a few people understand this. So it could be quite the surprise to many.

In the meantime the bankers and politicians are scrambling for the goodies pouring out of the financial piñata which they cracked open in the financial crisis.

The banks have plenty of gold to lease into the bullion banks, and then on into the markets and as collateral for leveraged paper obligations. But they are running out of silver, which causes me to believe that the silver cartel will break first, and will lead the way higher, as it has been doing.  A handful of Too Big To Fail Banks seem to be short more silver than can possibly be delivered without incurring terrific losses, even by today’s distorted standards.  From the looks of it, it appears that there is an undeliverable force heading towards an unmanageable object. Further complicating matters is the possibility of a magnitude 9.6 sovereign debt earthquake in the markets.

Unless there is some forced settlement, some draconian government intervention, silver appears to be a leading candidate for the manipulated market most likely to go super nova.

If the equity market does not fall apart over Greece et al., I would imagine that the trading desks will try to stand on the metals until a little closer to quarter end, then its elevator going up. But watch out for a Greek related problem. I am not sure how the markets might react to this if it really is another Lehman like event. So as you might expect I am running a paired trade, and net short into the close.

The dollar chart is a big problematic. I can make a scenario for a break either higher or lower from the chart. I think we will know the move when it comes, but predicting it in advance is a dicey thing, except for the broken clocks.

If the sovereign default situation goes badly there *could* be a liquidation selloff that would impact silver, and to some extent gold. This is why I am holding paired trades that are short stocks and long bullion. I further adjusted the risk downward today, and lengthened the shorts.

Re-published with author permission.

In a recent interview with Bloomberg, James Bullard, president of the St. Louis Fed, offered a blunt warning on America’s disastrous financial trajectory.

Lawmakers and investors shouldn’t take comfort in low U.S. borrowing costs because markets are often “complacent” about the risk from excessive deficit spending, said James Bullard, president of the Federal Reserve Bank of St. Louis.

“When it does blow up it will be too late,” Bullard said in an interview last month in New York. “When markets lose confidence in the U.S. and say that they don’t trust us any more, rates will skyrocket and the crisis will be upon you.”

He’s right, of course. Interest rates can’t stay low forever. If (when) the world does start to lose faith in America’s ability to reign in spending and cut debt, things could get crazy for a while. And quickly.

Mr. Bullard points to Greece as an example. Just a year and a half ago, the Greek 10-year yielded around 5.5%. Today that number is closer to 17%. 18 months later.

Trying to raise more debt at those levels would be ludicrous. Like trying to run a national budget on a high-interest credit card. Unsustainable, impossible. Nobody wants to buy your debt, you’ve sold quite enough already. But thanks.

While it is somewhat refreshing to hear such talk from a sitting Fed president, let’s be real. It’s meaningless, and in actuality Bullard is just one of the more hawkish doves. Hoenig’s on the way out, and he was the closest thing to a senior power-wielding “quasi-hawk” we had.

To say that most of Bullard’s colleagues do not share his concerns would be an understatement. And unfortunately, they’re the ones who call the shots.

Bill Dudley, ex-Goldman director and current head of the powerful NY Fed, who continually reassures us about the recovery’s “self-sustaining” nature, is among the uberly-dovish leaders.

By the way, isn’t it difficult to imagine how one could possibly, in any way, call the current economy self-sustaining? Self-destructive would work. But to say this recovery is organic in any way, as the central bank simultaneously injects historically-unprecedented amounts of liquidity into the market, is borderline moronic.

Interest rates are prices, and they are screwing with this fundamental aspect of the economy in a very dangerous way.

And they’re not just “juicin things up a lil” or “primin’ the pump a bit” at this point. They’re sloshing gasoline all over the place. More fuel to come, right after they let things cool down for a little while. My guess: QE3 starts late fall, early winter at latest.

Dudley is only co-captain of the dove brigade, of course. He shares that honor with the Bernank and Janet Yellen, both dedicated printers with a natural, clueless optimism about them. And a knack for ignoring things that affect small people, like price inflation.

There are no extremists at the Fed. No major opposing schools of thought, or vigorously debated theories. Only varying levels of conformity, best I can tell. Those at the Fed who experience (much frowned-upon) bouts of “hawkish urges” are hopelessly outnumbered, and outgunned politically.

Guest post by Jesse (highly recommended reading -Adam)

Gold Daily and Silver Weekly Charts – and Le US Douleur – More Volatility Ahead for Silver

Silver was hit harder as the US equities fell, and gold maintained some resilience.

The intraday moves had the character of bear raids and sharp selling in size, rather than steady liquidation.

Notice that the dollar too was weaker today, although it remains in a short term uptrend.

The number of contracts standing for May delivery of silver ROSE today according to Harvey Organ. The Comex delivered no actual silver, but the trading desks offered plenty of paper, as overall open interest rose again.

Someone asked me what it might be like if the Comex was unable to meet its deliveries, and there was a  cascading effect to the metals encumbered by counterparty risk in the two big ETFs, if they were hit by a wave of redemptions as large shareholders sought to lock in supply.

I did not see their scenario of multiple days of up limits until the market clears, simply because it seems to be a few large members important to the exchange who seem to be ‘holding the bag’  in this case.  Market solutions are for the little people and relative outsiders like the Hunt Brothers.

Rather, I would anticipate a declaration of force majeure, and a forced settlement in cash and shares of SLV, which themselves are probably representations of bullion rather than the metal itself.   I do not know what the rationale for this might be, and it is not quite clear to me that they would even need one except for cosmetic purposes.

When you have power and have learned to use it with ruthless hypocrisy, the only thing you need to respond to is a greater force of power that calls you to accounts. This is one of the great lessons from the recent financial crisis.  When the government and the regulators do not uphold their responsibilities, fraud becomes fashionable.

The Comex has about 32 million ounces of deliverable silver on their books, and they are dragging out the delivery process each month, as virtually no new inventory becomes available to replenish their supply.

I was a little shocked that the parabolic rise in price and  the subsequent calculated smackdown in conjunction with the increased margin requirements shook no new significant inventory loose for the dealers, only more paper profits. Customer withdrawals continue as well, with almost 3.5 million ounces leaving this month.

However it transpires, if it does, it will be memorable.   I am looking at the supply and demand as the numbers are published, and not at anything esoteric or private.  So I would imagine that the CFTC and the least sophisticated traders in the market can see the same things unfolding.  I hear things from time to time about back room discussions about the resolution of all this, and have to work to separate them from the tide disinformation, of which there is quite a bit more than you might imagine.  People are very concerned about a potential shock to the credibility of the system.  Of course, they may be utterly out of touch with current reality.  Trust is in short supply, and the natives are growing restless.

Rumours, and disparaging talk, and theoretical discussions are well and good, but as they say, show me the money, or in this case, the bullion.

Where is it, how much of there is it, and what are they going to do when and if the supply of silver bullion drops below 30 million ounces deliverable, which is really a pittance given the size of the market? A silver futures contract on Comex is 5,000 ounces, and so that represents a mere 6,000 contracts.  There are a total of 123,000 contracts open today.  Last Friday the volume was an eye popping 126,000 contracts!  This at times seems less a market, and more a game of musical chairs, or a shell game.  And if the allegations are true about the LBMA,  and their leverage, then what we have here may be a recipe for a severe market dislocation.

And this is why I expect the silver market to remain highly volatile, with some amazing moves ahead, both up and down. And stretchers perhaps, to carry out some players from the pits, as they get caught offside in high frequency moves, and an increasingly disorderly trade. And this due to the failure to reform the financial system.

And for us, the smaller investors, caution is advised.