Bearish News

Another round of Fed gasoline to errr, prime the pump? Nobody could have seen this coming.

From Tyler at ZH, quoting FOMC:

The only section that matters: “Some participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated, it would be appropriate to provide additional monetary policy accommodation…”

Precious metals react. Kitco News via Forbes:

Gold futures, already fortified by Europe’s continuing debt woes, got an extra shot in the arm Tuesday afternoon when minutes of the most recent meeting of Federal Reserve policy-makers showed at least some members are willing to consider further stimulus.

Silver also got a bump from today’s somehow-surprising news that QE3, or some other form of money printing, is still a very real possibility (inevitable, some say). Remember that the Fed’s Jackson Hole meeting is coming up next month, and Bill Gross says it is likely QE3 will be officially endorsed then.

Live 1d silver chart via Kitco.com:

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.

Guest post by Jesse

The miners were rallying with stocks and the metals today, as one might expect.

In the short term the markets will move on the Greek debt situation, the FOMC monetary policy decision tomorrow, and to some more individual extent the Russell 2000 rebalancing on Friday.

Gold looks to be on the verge of breaking out. Let’s see if they can do it. A great deal will depend on macroeconomic and political events in the short term.

I have included a second gold chart which shows the chart formations should the breakout be confirmed after the July Comex options expiration, and the sturm und drang which follows for a few days afterward.

JP Morgan may wish to plug in a new ‘cost of doing business’ item in their budget for the commodities trading group.  And Ben may need to keep a little ‘walking away’ money at hand for his cronies.

FT
JPMorgan settles SEC charges for $153m
By Kara Scannell in New York
June 21 2011 19:01

JPMorgan Chase agreed to pay $153.6m to resolve US Securities and Exchange Commission civil fraud charges that it misled investors in a mortgage-related security it constructed for Magnetar, an Illinois hedge fund.

The SEC charged JP Morgan with failing to disclose to investors in the collateralised debt obligation, a security linked to mortgage-backed securities, the role played by Magnetar.

The hedge fund helped select mortgages included in the CDO, named Squared, and was betting against them. The SEC alleged that investors were told that an independent firm, GSC Capital, had selected the portfolio.

JPMorgan agreed to settle and reimburse investors in the CDO without admitting or denying wrong-doing. The settlement also requires JPMorgan to change how it reviews and approves offerings of certain mortgage securities.

Visit Jesse’s Cafe, where he blogs daily. Published with author permission.