Sunday, October 31, 2010


The Age of Consequences

Bad banking practices have been going on for a long time, perhaps millennia but never has there been a time when so many have been exposed to the public eye. We have long considered Politicians somewhat less than honest but they continue at the helm of society. But again, never have so many dishonest politicians or their practices been so exposed. We do live in an age of consequences now and we do expect it to continue. What are the results of this in the financial world? Distrust, doubt, increasing regulation but worst of all declining confidence is spreading across the world in the developed world’s attitudes and practices. If these revelations keep on coming then the description, moral turpitude would well describe the ways of the West. Hopefully alarm bells are ringing in the right quarters and action is being taken, or is it?

What is a very visible consequence is the rising trust in gold as a wealth protector and counter to the depredation of the developed world. The advantage that the emerging world has is that they never trusted their investments to ‘the system’ before and are now seeing why they are right not to do so. One of gold and silver, for that matter, is that they are outside the system of obligations by government [such as currencies are bound by]. Once in your hand you alone control it. That is, of course unless the financial situation governments find themselves in becomes dire, then they are inclined towards following President Roosevelt in 1933 and confiscate their citizens gold. Many ridicule that possibility.

Banks sell customer’s gold!

A sobering example of just how government, the banking system and citizens can end up against each other over gold came today, when we saw the report that Vietnam's central bank has stopped banks selling gold deposited by customers and using the funds for loans or for converting into foreign currencies, partly to help take downward pressure off the dong. It is also concerned that, if the value of gold continues to soar, banks could suffer heavy losses when they have to buy gold back to repay depositors.

Friday, October 29, 2010


This is how the game has worked for hundreds of years. This is how the Federal Reserve Began its control.

The money changers had control of Medieval England's money supply and at this time were generally known as goldsmiths. Paper money started out and this was simply a receipt you would get after depositing gold with a goldsmith, in their safe rooms or vaults. This paper started being traded as it was far more convenient than carrying round a lot of heavy gold and silver coins.
Over time, to simplify the process, the receipts were made to the bearer, rather than to the individual depositor, making it readily transferable without the need for a signature. This, also, broke the tie to any identifiable deposit of gold.

Eventually the goldsmiths recognized that only a fraction of depositors ever came in and demanded their gold at any one time, so they found out how they could cheat on the system. They started to issue more receipts than they had gold to back those receipts and no one would be any the wiser. They would loan out these receipts which were not backed by the gold they had in their depositories and collect interest on them.

This was the birth of the system we know today as Fractional Reserve Banking, and like this system of today this meant the goldsmiths were able to make astronomical amounts of money by loaning out, what was essentially fraudulent receipts, as they were for gold the goldsmiths didn't even possess. As they gradually got more confident they would loan out up to 10 times the amount they had in their deposits.

To simplify how they made money on this, let's give an example in which a goldsmith charges the same rate of interest to creditors and debtors. In this example a goldsmith would pay interest of 6% on gold you had deposited with them, and then charge 6% interest on money, I mean fraudulent receipts, you borrowed from them. As they would lend out ten times what you had deposited with them, whilst they're paying you 6% interest, they are making 60% interest. This is on your gold.

The goldsmiths also discovered that their control of this fraudulent money supply gave them control over the economy and the assets of the people. They exacted their control by rowing the economy between easy money and tight money.

The way they did this was to make money easy to borrow and therefore increase the amount of money in circulation, then suddenly tighten the money supply, taking it out of circulation by making loans more difficult to get or stopping offering them altogether.

Why did they do this? Simple, because the result would be a certain percentage of the people being unable to repay their previous loans, and not having the facility to take out new ones, so they would go bankrupt and be forced to sell their assets to the goldsmiths for literally pennies on the dollar.

This is exactly what happens in the world economy of today, but is referred to with words like, "the business cycle," "boom and bust," "recession," and "depression," in order to confuse the population of the money changers scam.

The link gives you the rest of the story.

its gonna take a lot of this to happen.


A nice article from ZH that is a response of sorts to what I believe is a commonly asked question ...WHAT CAN WE DO? I suggest you read the entire article and don't go to the sink to vomit. Its not as dire as one might think. There are pendulums swings both ways.....relax.

1. Once you have control of the financial powers of the U.S. via the tiny Elites of the Congress, the Executive Branch, the Federal Reserve and the U.S. Treasury, then the rest of the government will follow.

To the degree that ownership of the Healthcare cartels is in the hands of the same Financial Power Elite, then the passage of the 2,300 page "Healthcare Reform Bill" in 2010 was simply another way for the Power Elite to expand its share of the national income.

The health of the citizenry or healthcare per se had essentially nothing to do with the passage of this monstrosity. The entire purpose was to increase the Elites' share of the national income by siphoning off an ever-greater share to the "healthcare" cartels.

2. This is how the Stealth Coup D'Etat works: the machinery of governance grinds through a simulacrum of democracy, but it's all for show; the theoretical structures are now completely different from the political realities. The citizens were against the bailout of Wall Street and the money-center banks 600-to-1; they were rightly ignored as inconsequential.

The citizenry replaced the political party leadership of Congress and the Presidency; absolutely nothing changed except the flavor of PR, spin and propaganda. The Power Elites and their Stealth Coup are apolitical. They don't care about the color of your uniform; whether you wear a blue shirt or a red shirt is inconsequential.

Some readers complain I over-use the descriptive word simulacrum, and I have tried to leaven this overuse with synonyms such as facsimile. But the key point to understand (and the goal here is always to reach an integrated understanding) is that there is a difference between formal structures such as democracy and free markets and their political and financial representations.

In other words, the "democracy" that was visible in passing healthcare reform (i.e. the diversion of more national income to a specific set of cartels) was a facsimile of democracy, a shadow of the real thing, a mere representation of true democracy.

This substitution of representation for reality is the key mechanism of the Stealth Coup D'Etat. In the financial fiasco now playing out, actual deeds to notes and property have been replaced with digital representations in a registry owned by the banks: MERS.

"Liberating" Iraq as a laudable goal of an enlightened State was merely a public relations facade for the occupation of a key geopolitical piece of a larger puzzle. The entire war has two components: the actual war on the ground, as revealed by 400,000 "liberated" documents, and the representation of the war in the Corporate Cartel Media and as presented by the Central State ministries.

3. The Stealth Coup can be traced by a simple dictum: follow the money. Once you control the money--the money supply, the manipulation of yields and bond sales, the budgeting and borrowing--then you control everything.

This is how a small Financial Power Elite dominates the vast, sprawling American Empire.

4. I use the term politics of experience in Survival+ (with a credit to its originator, R.D. Laing) to describe the manner in which the apparently depoliticized context of our daily media-saturated lives are shaped by political forces we rarely recognize.

In my critique, I invoke the term parallel shadow structures of privilege to describe the formalized but masked structures of power which operate behind the facades of democracy, free markets, and all the other PR bilge drummed into the minds of the the citizenry by a media cartel which itself has been financialized into a Corporatocracy.

Over time, Americans have come to believe that the current state of governance is "democracy" rather than a mere facsimile of democracy. They have come to believe (those still covered by insurance they don't directly pay for) that the U.S. "healthcare" system is "the finest in the world" when by some metrics it is the worst, most profligate, illness-inducing system imaginable. And so on.

Thus "homeownership" was elevated to quasi-religious status as a means of stripmining assets and income from a larger pool of debt-serfs. Earlier this year I asked a simple question: how much of your household's net income flows to cartels? That would include banking cartels (mortgages, second mortgages, credit cards, etc.), Central State-banking cartels (student loans), agribusiness cartels (fast foods, packaged foods, Monsanto, etc.), energy cartels, sickcare cartels (healthcare insurance, hospital chains, Big Pharma) and so on.

If we consider that much of rent payments flow to the same banking cartels (which is why the commercial real estate sector is imploding--too much debt, etc.), then most of us would find that the majority (or perhaps as much as 90%) of our money goes to a handful of cartels dominated by Financial Elites via the steady financialization of the U.S. economy.

How much of your taxes flow to the same cartels via their partnership/control of State fiefdoms?

If you think the term Stealth Coup D'Etat is overwrought, I invite you to ponder the headline quote from the Freedom Guerrilla weblog: None are so hopelessly enslaved as those who falsely believe they are free.

From the point of view of a deconstructed politics of experience, then the events of 2008-2010 are simply the culmination of a Stealth Coup D'Etat which began with the overt financialization of the U.S. economy and indeed of its entire culture

Thursday, October 28, 2010


The stars are aligning on this PM.....NEVER throw in at the top but once again you should be nibbling at the miners of this PM ...SSRI HL SLW. I like having a small position now.....expecting it to go lower but start building and HOPING you get to buy heavy cheap...Seeking Alpha excerpt today...

ilver looks very well technically and continues to play catch up with gold which has already risen by more than 50% over its 1980 nominal high of $850/oz (see chart above). The gold to silver ratio has fallen below 57 (56.3 - 1332/23.68) with 55 and 50 looking potential targets in the coming months. Throughout history the gold/silver ratio has been close to 15 and the average in the 20th century has been around 45. The relative undervaluation of silver to gold and the fact that it remains less than half of its (nominal) record price in 1980 is leading to strong demand for poor man's gold internationally and in Asia particularly.

Silver is currently trading at $23.73/oz, €17.16/oz and £14.98/oz.

Silver - 40 Years (Weekly).

The US commodity futures regulator is looking into claims by a former JP Morgan trader in London that JPMorgan Chase was involved in manipulative silver trading, The Wall Street Journal reports, citing a person close to the situation. Reuters reports that in recent months, Commodity Futures Trading Commission (CFTC) lawyers have interviewed employees of JPMorgan in its metals trading business, the newspaper said. Along with JPMorgan, CFTC lawyers have also interviewed industry traders, commodity executives, experts and employees of other metals trading firms, The Journal said. Ray Bashford, a spokesman for JPMorgan in Hong Kong, said the bank had no comment when contacted by Bloomberg News today.

It is hard to know how important Chilton's comments are with regard to the ongoing silver manipulation allegations.

They suggest that he himself agrees with the Gold Anti-Trust Action Committee (GATA) allegations that silver prices are manipulated. If the CFTC prosecutes those who may have manipulated gold and silver markets (as Chilton urged today) and violated commodities laws then it could lead to further volatility and higher prices. This would especially be the case if the large concentrated short positions on the COMEX, held by banks such as JP Morgan, were forced to cover their positions.

This may lead to a short squeeze that could propel silver above $30 and towards its nominal high of $50/oz in the coming months.

Wednesday, October 27, 2010


The silver market has seen a lot of surprises this year, and the statement today made by CFTC Commissioner Bart Chilton is probably the most unexpected yet. After more than two years of "investigation" into the silver market with no acknowledgment of structural issues, Chilten gave a public meeting in which he was quoted as saying "There have been fraudulent efforts to persuade and deviously control that price... the public deserves some answers to their concerns that silver markets are being, and have been, manipulated." He went on to state that the CFTC would be introducing new regulations to curb manipulation in the precious metals markets. Silver rose nearly 80 cents from its intraday low on the news.

Silver analyst Ted Butler has been writing letters and warning the CFTC of the consequences of manipulation in the silver market for more than 20 years. Not many people would bother to warn of these issues when ignored and ridiculed, however Butler persisted with his call for action to remove manipulators from the market. Up until recently, these warnings have been completely ignored.

As Butler and others have documented, a concentrated group of four to eight traders have been responsible for nearly 70 percent of all short positions in silver on the COMEX. These traders have consistently traded in unison to move prices while collecting large profits along the way. It is suspected that JP Morgan holds the majority of these short positions; however the CTFC has refused to acknowledge this and trading positions are not publicly disclosed.

Why Now? What does the CFTC and the short commercial banks know that we don't?

It doesn't take 20 years, or 2 years for that matter, to realize that there are obvious structural problems with the silver market - especially when the issues are spoon fed by letters from thousands of individuals. Given the reactive nature of the CFTC, it is unlikely that Chilten is acting preemptively to protect the small investor. It is more likely that the CFTC position is changing due to the structural change in the silver market. In 2008 weak long speculators were categorically replaced with blood thirsty hedge funds, wealthy investors, and developing nations who buy in cash.

Tuesday, October 26, 2010


for disclosure I am short Oil here but this is a must read.

Who Will Profit From the Raising Demand for Petroleum?

The entities owning the oil and gas reserves are certainly going to profit from peak oil as it will drive the value of their reserves and yearly production up while their costs are not likely to increase at the same rate. The big problem with the reserves is that the entity owning them right now might not be the one owning them in the long run. If oil, gas and other critical finite natural resources are not yet at the heart of national interests in some countries, they certainly will be in the long run.

High oil prices are likely to cause unrest and discontent among citizens and politicians will respond with the usual remedies: Socializing either the profits via higher taxation or taking ownership of the resources. While many of the oil majors and super majors seem to be reasonably valued and well positioned right now, one has to consider the possible outcomes of the next energy crisis. Government ownership might be actually a plus.

The companies to consider include Exxon Mobile (XOM), Chevron (CVX), ConocoPhillips (COP), BP (BP), Shell (RDS.A) and Total (TOT), all of which were featured in an excellent SA article. In addition, companies such as CNOOC (CEO), Statoil (STO), PetroChina (PTR) and Petroleo Brasileiro (PBR) are worth considering. Many of these are also heavily involved in natural gas, which is becoming an increasingly important source of energy and is likely to last much longer than oil. The companies with significant investments on the unconventional side include Suncor (SU), Canadian Natural Resources (CNQ), Imperial Oil (IMO) and Nexen Inc. (NXY).

The Case for Offshore Oil & Gas Drillers

The offshore drillers pop up in my stock screens often since they got the right stuff: Growing revenues, relatively low debt burden, excellent margins, low valuations in terms of P/E, P/B and price per cash flow. In exchange of all this, you have the risks which are all too familiar to everybody by now. However, these companies are less likely to experience socializing as they do not own the reserves, but only the rigs used in drilling the offshore wells.

So far it has seemed to be an excellent business and I am betting my money that it will continue to be an excellent business in the long run (5-20 years), as long as there is something worth drilling on the bottom of the ocean.

Different types of production platforms (Wikipedia, NOAA)

Drillers that have equipment used in deep and ultra deep production are the most appealing as that is the segment which is growing. This means that they have floating rigs, drill ships and such equipment either in use or under construction. The more they have these as a percentage of their entire fleet, the better.

Also, I prefer drillers with geologically diversified portfolios and big oil companies as customers (lower counterparty risk). The companies worth studying for these traits include (in the order of market cap): Transocean (RIG), Diamond Offshore Drilling (DO), Noble Corporation (NE) and Atwood Oceanics (ATW). A brief financial and valuation summary of these corporations follows:

Monday, October 25, 2010


Nice read by Michael Pento

Investors the world over have traditionally flocked to the US dollar for safety. Many well remember the fall of non-dollar currencies in 2008, when the Dollar Index surged 27% and crushed most commodity prices, including gold. How do we know that the next international crisis won't cause the same global flight into the "safety" of US dollars and out of secondary currencies like the euro? The answer can be found in comparing the Fed's current approach with the strategy it employed two years ago.

Ben Bernanke's initial response to the credit crisis of 2008 was fairly muted. Given today's era of accommodation, it may surprise investors to be reminded that the Fed left interest rates unchanged throughout the entire panic period from April 30ththru October 8th, 2008, despite the fact that the S&P 500 dropped 37% during that time. And Bernanke only slightly increased the monetary base by $160 billion during that drubbing in equities. So, given the uncertainty and confusion that reigned and the Fed's promises of stability, global investors flocked to the dollar, as they have done in Pavlovian fashion ever since the Bretton Woods Agreement was signed more than 65 years ago.

However, since the initial crash, the Fed has abused the dollar so disastrously that the remaining well of confidence has dried up. Ben sent out a fleet of helicopters to demonstrate to the world that he would not tolerate the appreciation of the USD or allow price levels to contract. While other central banks are beginning to tighten policy, the Fed has only promised more "quantitative easing."

On the fiscal side, lawmakers in Washington have diverged from their counterparts in Berlin and London by refusing to consider any measures that would address growing debts. While austerity takes hold around the world, profligacy still runs rampant in the US.

In short, we are sending a loud and clear message to global investors: "You will be severely punished for seeking shelter in our currency and bond market!" The monetary base has doubled since the crisis, to $2 trillion, and the announcement of another dramatic increase is expected at the conclusion of the next FOMC meeting on November 3rd. The Fed has engineered robust "growth" rates in all the monetary aggregates, but yet has gone on record for the first time in its history saying that the rate of inflation is too low. All this has resulted in the US dollar losing nearly 13% of its value since June.

I went on record last summer saying that selling euros (or most any other currency) to buy US dollars is sort of like exchanging your ticket on the Titanic for a ride on the Hindenburg. The only safe forms of money are those that act as a store of wealth, preferably because their value will not be recklessly diluted by fiat. The Fed has put the world on notice that the dollar can no longer be viewed as a safe-haven currency. No such notice has been posted by the European Central Bank. And although no fiat currency is really safe, it is clear some are abused much less than others.

During the next phase of the crisis, it is likely that investors will be more cognizant of these facts than they were in 2008. As a result, I would expect them to seek shelter outside the dollar, perhaps in other currencies but also in commodities and precious metals. The days of panic dollar spikes may finally be over.

Sunday, October 24, 2010


I listen to traders challenging gold as an investment at this stage and found a nice article for your is just one reason in the article to hold gold...but the entire article is quick and simple.

Fears of sovereign debt defaults have added to the worries of investors, already rattled by stock market volatility. Add to this existing geopolitical tensions, continuing economic uncertainty and declining gold production in key mining nations and you get an idea of gold’s unshakable safe haven status.

As long as these factors persist, gold is likely to find favor among institutional investors. However, if history is any guide, one can be sure that volatility in the price of gold will be the order of the day.

As I said above. Those who took the hedges on Gold are the powers behind the political facade of government. They knew a currency crisis was coming and sovereign debt default was a real possibility.

I may even suggest they structured it this way...but I’ll leave that to wear their tin-foil hats out in the open. Mine’s still in the closet!

Saturday, October 23, 2010


Thnx analyze.......

I posted a couple weeks ago in terms of EGO with a bias to down (yeah, it happened, huge surprise on that lol), the miners are under distribution, so anything on the longside only works on the trend acceleration extremes to downside (see the ANV chart), in other words, extremes are bought countertrend for one day pops, but there are no reversals daily yet to reverse the overall trend. I would really hate for ANV to break trend here, I want a 21 reversal instead, and need that to occur within the next week of trading. Reversal right here on that position as a proxy to miners - not good bigger picture. GDX/GDXJ (at this price level to reverse now) is an arduous path of sideways to up moves that are crap on the options side. So hope for more miner downside, we need that to occur in order to have viable trades, otherwise that sector is a pass-over for me going forward for some time long or short.
In terms of the market trend, Temo and I (sorry to speak on your behalf Temo) both agree that the trend up remains, and is similar to a year ago with a price oscillation on SPX due to the sector bias leading. There are two premises, the first with a 1200/1220 bias to fall out of accelerated trend to intermediate trend as support (big selloff there that reverses up), where you load up long, albeit I assume you are not loading into distribution sectors, expecting SPX reversals to breathe life into dead positions. The other is we grind higher to new highs on SPX. I hugely am on the side of the first premise.
Shorter term until those targets, if we have a big down day you load long, and do not assume prevalent downside. A huge down day (something like -20 SPX) is a small caps long and hit Tech on the call side. Everything about trading now is patience, where you pick a pony, wait for a great entry, take it, and be patient for it to ramp and then dump it (small caps plays not included).

The point of "distribution" always comes up during phases like this, what I would ask is, what is being distributed? Surely people do not take a SPY view on something like that - it is only when the sectors that lead higher go under distribution to break trend, that a term like "distribution" is meaningful, so again, do not take consolidated indices "under distribution" as a way to trade. This is like the fools term of "we are overbought" to mean a bear premise is valid. Overbought can remain for months, and the fact it is overbought means you buy weakness when it retraces from not being so; it is not a pre-cursor to a selloff, but instead to trend continuation. Fake EW junkies who love to chart but have never traded use that a lot. Distribution has occurred since the inception of the market, including bull uptrend’s, where real traders look for long entries, and the brainless follow "truth" instead of price action. Go to a bear board and see what "truth" is on old news that is released to serve their bias. They are the court jesters for the ponzi and too dense to know it. I remember this crap during last year's move up. Every candle was the top of something and the end of the world, and the message board shutins out of money posted desperately to get attention, while the few real traders caught the upside.
I posted a week ago or so to buy dips, we had a SPX selloff a few days ago that had all the bears jumping around, what a joke. When we hit a trend reversal I will let you know. You will notice the price action is similar to last year, I posted several times that, "he who trades to a consolidated index is slaughtered", the reason the SPX action on a daily chart looks like it does, is that you have dampened sectors versus the leaders, and as each of these rotates through consolidation it gives that look to the price action. Notice transports weakness versus a green SPX today as an example.
I still like UTA, EXAR, DSCO as holds along with the sector plays, but the price action until a solid trend is established with higher volume tends to do that, these plays are volatile shorter term. Notice the BS around 6.66 for EXAR that I mentioned previously, no surprise there. Consolidation prior to moving higher for that level is as predictable as the sun coming up on cloudless days, so buy on w

Friday, October 22, 2010


From goldseek adrian ash......and yes thankyou Ben.

THE PRICE OF WHOLESALE gold bullion fell to 3-week lows against the Dollar on Friday morning in London, sliding 5.1% from last week's all-time high – and dipping below $1316 an ounce – before steadying as the US currency eased back on the forex market.

Asian and European stock markets were muted, and major-economy bonds were little changed, but US crude oil contracts rose sharply to $81.50 per barrel.

A leaked letter from US Treasury Secretary Tim Geithner called on the G20 summit of leading-economy ministers – now meeting in Seoul, South Korea – to agree trade-balance targets.

"G20 emerging market countries with significantly undervalued currencies...need to allow their exchange rates to adjust levels consistent with economic fundamentals," adds Geithner, not naming but clearly meaning China.

"Precious metal prices, especially gold and silver, have for some time now benefited from the lack of alternatives available to Chinese savers," says the latest Commodities Weekly from Nic Brown's team at French bank (and London bullion dealer) Natixis.

China's private gold bullion demand rose 25% in the second quarter from a year earlier, according to data from the World Gold Council. Chinese households accounted for more than one sixth of total global demand.

After this week's deposit-rate hike to 2.5%, however, and "If the central bank is prepared to raise rates to combat inflation, this would provide Chinese savers with an increasingly attractive alternative to real assets," says Natixis.

But "it would be impossible for China to hold the Yuan at its current level versus the Dollar if Chinese interest rates were to rise far above those in the US," the bank adds.

Latest inflation data said this week that Chinese consumer prices rose 3.6% in the year-to-Oct. Federal Reserve interest rates are currently held at zero.

South Korea meantime moved to revive exchange controls on Friday, raising the idea of a withholding tax on foreign investors in a prevent speculative inflows from the pushing the Won higher against the Dollar.

"As long as the US, Eurozone, Japan and the UK are running loose monetary policy, there is not much policy-makers as a group can do to discourage this fundamental and liquidity-driven trade" into emerging-market currencies, says Marc Chandler, chief strategist at FX dealers Brown Brothers Harriman.

"As a result, it appears that most countries are willing to continue taking unilateral measures."

Back in the precious metals market today, silver prices matched and extended gold's drop, losing 5.9% at one point from last week's 30-year high to dip below $22.90 per ounce.

Priced in Euros, spot gold fell out the €1000-per-kilo range it had traded in since mid-August, slipping 3.3% on the week to €30,450.

UK investors looking to buy gold saw a much smaller discount, however, with spot prices holding around £840 an ounce as the Pound fell hard on the forex market.

Ahead of the G20 summit, the US Dollar meantime held near 15-year lows to the Japanese Yen, and all-time record lows to the Chinese Yuan.

For the first time, says a Dow Jones report, China has allowed the Asian Development Bank and some other international agencies to take their earnings on Yuan-denominated bonds offshore, but only if they're first converted out of the Chinese currency.

Thursday, October 21, 2010


From seeking alpha.......nice read

Looking for investments outside the U.S.? You are not alone! With the dollar plummeting almost daily, money seems to be fleeing U.S. shores faster than the Fed can print it.

Just look at the Wild West . . . er, I mean Wild East of stocks. East as in China -- the largest emerging market. Now look at small-caps. Scared yet? After the Tuesday's action you should be -- some Chinese small-caps fell 9-10%! But wait . . . Yes, you can find value and growth in Chinese small-caps.

Consider China Sky One Medical (CSKI): A P/E under 4, no debt, yoy revenue growth of 27%, and a Price/Sales ratio of 1. Look at Duoyuan Printing (DYP) with its PE ratio of 1.4. Then there is Fuqi International (FUQI) which you can buy for only slightly more than its $6.27cash per share. FUQI and DYP sell for less than 70% of annual sales and have P/E ratios less than 4. Other Chinese small-cap values exist in China Electric Motor (CELM), China Security & Surveillance (CSR), L&L Energy (LLEN), and Universal Travel Group (UTA).

With those numbers, how can you not like these stocks? . . . I know! I know! Mr Market can be quite ingenious at finding ways of torpedoing the most obvious "buys". But, like I said, this is the Wild East and anything can happen. What goes down fast can go up just as fast.

Risks? Where do we start? Jim Chanos says China is the next Enron. Sudden currency changes, interest rate adjustments by decree, an unpredictable government (I hesitate to use the word communist), and accounting irregularities are but a few of the potential negatives. Volatility is frightening -- the smallest rumors can rocket up or torpedo prices.

Wealth management firms such as Northern Trust (NTRS), burned by the 2008 crash, plays it conservative. The firm won't recommend Chinese small-caps for its clients -- it would violate Northern Trust's fiduciary responsibility. Individuals, if they play it right, can profit from some of the fastest growth markets in the world. Dale Carnegie said "All life is a chance. The man who goes farthest is generally the one who is willing to do and dare".

Do your own due diligence. Small cap stocks are volatile everywhere, especially so in China. My approach is to take small positions in several companies, sell those that fall 10% or so, but let the winners run. Who knows? You may tap into a Chinese superstar.

Think positive to avoid the Chinese market's Dr. Loveless-like twists and turns. James West and Artemus Gordon protected and won the day for the U.S. Maybe you can't protect the U.S. -- or you may be able to protect and enhance your portfolio.

Wednesday, October 20, 2010


I love this game...watta joke as investors seek safety in real companies...they pile in to the very best driving their prices to infinity. This article from Alpha is spot on.

The problem though comes in with how much one is willing to pay for those profits today. Let's pretend for a moment that AAPL continues to grow its free cash flow 50% every two years as it has the past two. That would mean year end in 2012, their free cash flow would be $19.5 billion and in 2014, the free cash flow would stand at $29.25 billion.

Here is the kicker, if the stock did not go higher for the next 4 years, yet the company grew 50% in FCF every two years for the next 4, the business would be generating a 10% FCF 4 years from now. 10% is nothing to sneeze at I must admit. But there are plenty of mature businesses one can buy today who sell essential service products that people have to buy that yield 10% from a FCF stand point.

Here is one:

Kimberly-Clark (KMB)

While diapers and toilet paper are not as sexy as the newest iPad, I would have to say that I use the products of one every day, and I don't own the product of the other or its competitors. One is a must have, the other is a luxury. I will let you judge which is which.

Currently the FCF yield on AAPL is a paltry 3.1%. The business is priced for continued hyper growth. Again, if the price got stuck here at a $285 billion market cap, the business would have to grow 50% every two years just to become as attractive as stodgy ole Kimberly-Clark from a free cash flow per dollar invested basis. If AAPL somehow began to stagnate in the face of all the competition from Google (GOOG) and others, then every dollar invested today would only bring 3.1% FCF return at current prices, about 67% worse than KMB on a per invested dollar basis. Would you go and spend $500,000 on a local Subway Franchise if you knew the yearly income you would receive was $15,500? Buying AAPL at this price here is the same thing. Of course, you may be hoping that the sandwich shop you spent $500,000 on will turn into a $50,000 a year income in 4 years, but you would sure be relying on a lot of continued growth over long periods of time. Who wants to park their money for 4 years in hopes of making 10% in FCF yields 4 years from now, when there are other businesses paying that kind of FCF yield today?

Tuesday, October 19, 2010

Overall Market Trend

Nadeem Walayat is one of the few analysts that has called the market fairly accurate this yr, here is his latest article published yesterday:

Everything appears to be in synch! All of the analysis together lead me to the following trend conclusion for the stock market as measured by the DJIA30 index - The Stock market is heading for an imminent correction which means it may not be able to reach resistance at 11,250 before correcting which targets a trend to 10,700-10,500 by mid November, that I expect to resolve in an uptrend into January 2011 that targets Dow 12,000 as illustrated by the below graph, and therefore confirms the original forecast target for the Dow as of January 2010. Also an interim analysis for 2011 suggests that the Bull run could continue into May/June 2011 (more on this in late December).

Monday, October 18, 2010


Don't get too exited. Just more games to come this week, but I like some of the energy plays on weakness...keep them small and take your buy and hold long here. DTO needs to see oil push closer to 85...but I already have a small position. I'll watch ATPG and HAWK for quick trades on weakness. DCTH on weakness too. Good read on Gold pullback hahah.

A growing number of countries see a weaker exchange rate as a way to lift their economies. They want to export their way out of trouble. This war is over the ability to export to other nations and about keeping your own citizens employed during a period of an extended slowdown in global demand. Nations will either vault forward or fall behind, so they are trying to protect their own turf, a worrying signal that all is not well with the global economy. Countries tend to be less bothered about a strong currency in good times.

With further quantitative easing in the developed world, the appeal of hard, unprintable currencies like gold and other commodities will continue to shine. Given the budgetary jam U.S. leaders find themselves facing, they understand that one of the few options they have is to boost American exports by devaluing the dollar.

All this in the long term will be very good for gold.

Speaking of gold, the very long-term gold chart shows that gold moved up to the upper border of the very long-term trading channel. Last week’s stated target level was breached only temporarily. Although at first sight, Friday's intra-day action might give a different impression, it seems as though gold’s fervent rally may have cooled.

Nice article on how to play this...

Sunday, October 17, 2010


Our profound sympathy for the family of Barbara Billingsley an American icon for her role as June Cleaver. Barbara was preceded in death by her co-star Hugh Beumont. It was revealed many years after the famous Beaver series that the writers wrote the scripts with purposeful double entendres and the actors had difficulty getting through the shoots without breaking up. One of the best known lines used over and over was "Ward you were awfully hard on the beaver last night" We will all miss that boring as it was.

The Sunday pundits are debating the reason that the dems are going to get their asses kicked in the midterms. Of course with their high six and seven figure reporting salaries with great health care coverage..its no wonder I find them to be particularly full of shit. Live in my world in the midwest and take care of people on a daily basis seeking health care in a world that doesn't give a shit. Then come and tell me WHY Obama is going to get his ass kicked.

He sold out to the lobby interests on health care BEFORE he even proposed it. The deal was set and the progressives with half a brain KNOW it. THAT is why the dems are going to lose. The mindless minions that swallow the platitudes put out by the hundreds of millions of lobbying dollars were ALWAYS going to vote against the dems. This was ALL baked into the cake before the health care debacle. Its a terrible bill and will place us behind the eight ball in health care costs for years and years. When I say us....its the age group of 18 to 65 that is NOT covered by medicare or other government policies. You would be surprised by how many people with state health care....military VA or dependents.....county or municipal...federal employee healthcare...MEDICARE......WERE RABID OPPONENTS OF A SINGLE PAYER or PUBLIC OPTION for the rest of us left to be raped by the bankers...My private poll and it was large enough to place me in a number of arguments showed the above group fought true healthcare reform 100%.....WERE YOU ONE OF THAT HYPOCRITICAL GROUP?? God I hope not...IF you were then look in a mirror and vomit on yourself.

Obama showed NO leadership on this issue.....sure.. I know he was told what to due by the Cabal...but guess what? That just makes you a bigger piece of shit.

I won't waste your time with rehashing his continued sellout to the bankers and their 144 BILLION dollar compensation coming this year. DO YOU REALLY think its 144BILLION......hahahahahha... Its twice that...The sheeple just don't have a clue. Hell it might as well be 2 TRILLLION..most Americans can't count past a hundred and have no capacity to conceptualize the impact this thievery has on the overall economy and our future ability to build infrastructure and a manufacturing/job base. Our cumulative math scores place us 36th now behind Equador. Enjoy your Sunday.

Saturday, October 16, 2010


A classic example of what is transpiring in our economic world can be found within the Apple story. Steve Jobs the genius behind Apple was unceremoniously dumped by the very CEO that he brought in to run Apple....John Sculley. Apple was a PRODUCT company built on bringing about the latest technology developments. Without a creative genius to drive Apple's development, it died on the vine. It's demise finally ended with Vince Amelio. Three MBA non creative CEOs later and an entrepreneurial driven product company was destroyed completely. Raped to its death by the same forces that have killed our country. These men had no capacity to be drivers of change.

Steve Jobs was viewed as "disruptive" by the board that governed Apple. They chose the safer slime that they could more easily identify with. Rather than take on the challenges that Jobs wanted for the company. Virtually anyone that is a visionary finds that their changes are met not only with resistance, but with a bizarre paranoia that attempts to destroy them. Jobs was that victim. Our country's past and its future lies within our ablility to unleash this spirit. Remember that I have said we have a "structural" problem causing our real collapse. These are the hardest economic problems to overcome. They require leadership and planning with years and years of implementation. Unfortunately we have a culture that is now built around consumerism and Wall Street banking. This represents the Apple board room and Sculley and Amelio...This is our country's future.

Unless we have a reconfiguration of this country's structure then our future is that of the Apple corporation after Steve Jobs was fired. We have NO leadership within the three branches of Government. All have been coopted by the BIG corporations money. Unless this system is broken apart as ATT was, then there will be no innovation that pushes our country forward. Morally we are bankrupt. Steve Jobs survived the board and Cancer. Maybe we can too. God bless Steve Jobs and this country. gl all.

Friday, October 15, 2010


Sorry...on the run today so sporadic post.....added small DTO. hoping for 85 plus oil. Smells like distribution could be getting close to over so don't be leaning too long happy with your profits.

Hope your weekend is good and long. This market is treacherous so staying on the sidelines here is fine.

Accumulate ATPG and SGY on weakness and of course watch the miners for a beatdown. All I've seen is a beatup so far.

Enjoy this article on Chile and I must say it does look nice.

update I ...Joe..stock is HAWK checkit...Analyze if you can give a tech for us on it.....Soros in it good short interest...and good float

Thursday, October 14, 2010


Let's simply cure all the ills of a collapsing empire by destroying the currency through the FEDs printing machine. Forget about fixing the underlying STRUCTURAL economic underlying issues. Forget about a declining educational system as compared to the rest of the world. Just prop up the equity market. AND educate MORE MBAs. WE KNOW what they produce for our country....HELL!

Forget about a transportation system that is falling into disrepair. Not to mention that mass transit is now NON EXISTENT here.

Forget about manufacturing that has been shipped to every developing country in the world. Jobs are NOT coming back....just put more QE into equities.

Forget about our structural energy deficits....WE have nat gas but NOT oil....guess what we are doing to nat gas? NOTHING...NO PLAN..We are letting the industry collapse and our chance of independence from imported oil. What about solar wind nuclear.....all major structural issues.....IGNORED.... just have the FED print money. I luv it. Make more I Pods...

Structural demographics...try that one on Ben...that should get your presses going.....those MBA boyz had better work really hard to pay for the 130 million americans over 65 in 10 years.....They are going to suck you dry.

MILITARY INDUSTRIAL SPENDING........a structural disaster......800 military bases in 125 countries......two active foreign big deal RIGHT?

Wednesday, October 13, 2010


Yesterday Obama lifted the ban on offshore and the gulf oil drilling. ATPG after getting savaged earlier this yr ( drop from $23.90 to $8) has doubled from bottom. The following is very interesting data:

There's 51 million shares total...

12.7% owned by insiders (6.48 million shares)

61.8% owned by institutional investors (31.52 million shares)

That leaves only 13 million shares owned by us retail investors!

After yesterday the short position still likely numbers somewhere between 14 and 16 million shares.

There's not even enough retail shares to cover the short position!

There was two area's where the short position increased greatly. First increase was around $18.00, and the second was around $9.00.

The $9.00 short position is just reeling in pain, but the $18.00 short position (The bond/convertible holders) will only likely start to cover once we get above $17.50.

ATPG is going to get really interesting even if as joe mentioned retraces short term.

Good read on the energy mess we are facing:

Tuesday, October 12, 2010


Relax and enjoy the game. Other than Analyze's EXAR that Joe and I have been talking about. I don't see much happening today. Get a position and hope they drive it to 5 for another buy... I like this long term. DCTH has been a nice hold. DTO is being held here. Hope they push oil over 85 but........ If the market stays up going into election then nice sell off will come. Right now all the news on MERS is noise.... It is an absolute disaster but its only noise for the market. The short and intermediate issue with the market is QE. If they wish to push it higher and they do.....then its only a matter of what path they choose. Look for any pull backs to pick up miners ANV EGO GFI SLW SSRI. HL is ok as a hold here.

Watch DCTH EXAR for weakness to accumulate heavy. Then you will have shares to trade. This is a smelly pile of chit we are in, but you have to take a step into it. They are raping you. Best bet is to buy silver gold bullion or good farmland.


This is BIG news for drillers like ATPG, talk about short squeeze, thanks Joe:

Monday, October 11, 2010


Easy read from Rockwell. Keep your eyes on the target. This market is begging to correct, but they could still push it down the road.

What the Census data indicate is that our mobility has been drastically curtailed from what it was a few years ago. The number of people who have not moved from one home to another, from one community to another, has risen substantially.

From an economic point of view, this makes sense. Maybe people are afraid to put their houses on sale for fear of discovering what price the market will bear. Many people sunk vast sums into their houses under the assumption, alive for decades, that homes would forever go up in price. This turns out to be the great myth that has devastated family finances across the country.

Another factor affecting mobility has been the tight labor market. Jobs are just not easy to come by, and it is especially difficult to transport a boom-time salary to another location during the bust. Market pressures during recessions are always downward. The safest path is to stay put.

Another trend is the delay in marriage. For the first time since the data have been tracked, the share of women 18 and older who are married fell below 50%. The share of the population age 25 to 34 that is unmarried jumped from 34.5% in 2000 to 46.3% nine years later. This is a massive social trend, dictated by economic realities.

There is a general tendency to marry in secure economic times, and to put this decision off during periods of economic uncertainty. Moreover, falling incomes and tighter labor markets give women, in particular, less to gain from a marriage, because there is far less likelihood that a household can get by on a single income.

We've also seen a jump in the number of people working from home, which also makes sense given the tighter labor markets and growing resistance to hiring. Another option besides working at home is one that Europeans know very well: going back to school. This trend has taken hold in the United States in the last two years.

The tendency to plunge back into school is also dictated by economic realities. We are now in the third straight year of college graduating classes whose earnings potential is far less than they had expected during their years in school. During these years, students accumulated six-figure debts that they figured they could pay off in a reasonable time with their high incomes. Those incomes have not appeared. So rather than accepting pay at the prevailing rate, they have re-enrolled in school to defer having to service the loan.

We might as well bring up the striking trend of young people moving back in with their parents after a period of living by themselves. This phenomenon has given rise to the phrase Boomerang Generation. In 2000, some 17% of Americans age 20 to 29 lived at home. Today, some estimates put that figure at 34%. And this compares to 1960, when only 9% of people in this age group lived with their parents.

This Boomerang Generation also turns out to be the Sloth Generation, since many of these people have never held a job in their lives. It's not their fault, for the most part. The economic crisis, child labor laws, socialized educational costs, minimum wages, and a government-imposed culture of prolonged adolescence have combined to deny opportunity to an entire generation.

Tragically, labor force participation among American youth age 16 to 24 continues to fall. Most recently, it fell to 60.5% in July 2010, which is the lowest July ever recorded. Before twenty years ago, the typical labor force participation rate ranged between 81 and 86%. In other words, 4 out of 5 kids in this age group gained hugely valuable experience for a lifetime of work. Now only 3 out of 5 kids do. The most dramatic drops we've seen in these figures have been in the past three years.

Saturday, October 9, 2010


If you were in the right miners you would have done very well...ANV SLW EGO GORO..but overall its hard to argue his point..briefly my conclusion is the same as others here....paper assets are being used to keep the prices of gold and miners in check....its why the futures markets give the cabal its price controls.

Gold Miners Not Providing Leverage

As analyzed in my previous article, “Peak Gold or Gold Corp Overpays for Andean”, the major Gold miners are not providing leverage from the underlying Gold price. Gold gains 10% in price and the miners gain 10% in price. True the mining equity is marching along with the Gold price moves, but the equity should compensate the investor with more gains and leverage for taking the increased company specific risks of investing in a company stock.

Gold, the metal itself does not have company specific risks, whereas each mining equity carries a whole cartload of risks including country location, mining performance, governmental and environmental, geological happenstances and so on and so forth.

Friday, October 8, 2010


Larry Meyers said there will be QE as far as the eye can see this morning. Of course there will.....How do you think they can create the survival boat for their biggest banks. After all the federal reserve isn't in this game for us. They are private bankers. Supporting the biggest banks only is the real game. In time these banks will take over most of the banking in the U. S. That's the plan. Ownership of you is already complete. This will only make their profit maximized.

Don't worry. There is nothing you are going to do about it. Just look at CNBC today. Sitting right in the very walls of the St. Louis Fed. Building. Showing all of you that they are in charge of your country. Relax and play the game. I hope they keep the casino open. I know how to play blackjack. Unfortunately it doesn't work too well for the person that doesn't understand the rules of the game.

Ultimately however this distortion of the economy will fail and there will be a cleaning. I do NOT adhere to those that believe this will happen near term. Our economy will weaken but our market will stay in a range and PROBABLY ramp into next year. Buying physical gold and silver is your play...I continue to trade NBR ATPG SGG DTO here. and hold DCTH and small others. Mostly cash. gl all

Thursday, October 7, 2010


If you all recall about 3 weeks ago, Joe mentioned DCTH as buy and hold at $6, this stock has been taken down from $16 in April to mid 5s. The calls by hedge funds are increasing and there is rumor of a major take over by a big pharm, regardless due to the product this company has and the NDA schedule of 4th quarter and possible FDA approval by mid 2011, Joe thinks of this stock as a gem which is why he mentioned it a good buy at $6. The following article also shed more light on DCTH:


I really dislike sounding inflammatory. Saying that things are going to go terribly wrong runs a risk of being classed with those who think the world will end in December 2012 because of something Nostradamus or the Bible says, or because that’s what the Mayan calendar predicts.

This is different. In the real world, cause has effect. Nobody has a crystal ball, but a good economist (there are some, though very few, in existence) can definitely pinpoint causes and estimate not only what their immediate and direct effects are likely to be (that’s not hard; a smart kid can usually do that) but the indirect and delayed effects.

In the first half of this year, people were looking at the U.S. economy and seeing that some things were better. Auto sales were up – because of the wasteful Cash for Clunkers program. Home sales were up – because of the $8,000 credit and distressed pricing. Employment was up – partly because of Census hiring, and partly because hundreds of billions have been thrown at the economy. The recovery impresses me as a charade.

Let’s get beyond what the popular media parrots are telling us and attempt to derive some reasonable assumptions about how things really are and where they’re headed.

A Brief Summary of Our Story So Far….

Before we get to where things stand at the moment, let’s briefly look at where we‘ve come from.

That a depression was in the cards has been foreseeable for decades. The distortions cranked into the system in the ‘60s – the era of “guns and butter” spending by the government – resulted in the tumult of the ‘70s. Things could, and one could argue should, have come unglued then. But they didn’t, for a number of reasons that have only become clear in retrospect:

Interest rates were allowed to rise to curative levels;
The markets were non-manipulated and so, as they became quite depressed, were left to send out real distress signals;
The U.S. was still running a trade surplus;
The dollar had only come off the gold standard in 1971 and was still relatively sound.
Then, starting with Reagan and Thatcher, the world’s governments started cutting taxes and deregulating. The USSR collapsed peaceably. China, then India, made a shift toward free markets. And on top of it all, the computer revolution got seriously underway. All told, a good formula for recovery and a sound foundation for a boom.

But sadly, taxes, government spending, and deficits soon started heading much higher. Despite the collapse of its only conceivable enemy, U.S. military spending continued to skyrocket. Monetary policy encouraged everyone to take on huge amounts of debt, much more than ever in the past, and everyone soon found they could live way above their means. The stock, real estate, and bond markets got pumped up to ridiculous levels. The main U.S. export became trillions of paper dollars. Worst of all, the U.S. devolved into just another country, undistinguished by anything other than a legacy of a high standard of living.

The standard of living in the U.S. is now going down for these reasons, and others. But most disturbing to the average American is the falling position of the U.S. relative to the rest of the world. In brief, Americans won’t take kindly to the notion that they can’t continue earning, say, $10-40 an hour, for doing exactly the same thing a Chinese will do for $1-4 an hour.

What’s going to happen is that the Americans’ earnings are going to drop, while those of the Chinese are going to rise, meeting someplace in the middle. Especially when the Chinese works harder, longer, saves his money, and doesn’t burden his employer with all kinds of legacy benefits, topped off with lawsuits. This is a new threat, one that can’t be countered with B-2 bombers. It’s also something as big and as inevitable as a glacier coming down a valley during an Ice Age.

This, along with other problems presented by the business cycle have ushered in the Greater Depression.

For the action going today........DCTH rumor of takeover is squeezing the shorts....stay tuned more to go.....double digits.

SGG.......ive warned you about this one traded again small ammts but return is nice....I'm out

Wednesday, October 6, 2010

BIG READ update I

This is a mere sample that is within this article. The real meat of the article is in the latter half. Well worth the time.


The mushroom has a primary point of vulnerability that has received very little attention. The Mortgage Electronic Registration Systems (MERS) was originally an innovative process that simplified the way mortgage ownership and servicing rights were originated, sold, and tracked. MERS is a property title database, intended by Wall Street and Fannie Mae to serve as a repository that kept order when mortgage bonds were traded fast and furious. In recent court cases in at least three states, the MERS database failed to attain legal standing in mortgage foreclosure challenges. The holder of the note (home loan) could not combine with the MERS database (title holder) to win property seizure. The system began to unravel. Now in at least one state, the MERS database is directly cited in a criminal fraud class action lawsuit that invokes the RICO statutes. MERS is the financial system's Achilles Heel. Maybe a big bank like Bank of America might collapse, fall into ruin, and dissolve from proof of racketeering, its assets confiscated by aggrieved parties to fraud. Obviously, Bank of America along with several other big banks have been dead for a long time, since October 2008 in my estimation. If not for the lax and complicit accounting rules by the Financial Accounting Standards Board, which permit banks to declare their own fictitious value for their balance sheet assets, imposed in April 2009, the big banks would undergo liquidation. They cling to control of the USGovt financial purse, its USDollar printing press, its conduits to financial centers, and its extended arm to legal prosecution control. Big bank liquidation is tantamount to liquidation of the entire US financial structure, its power and privilege, in plain words.

MERS has gained unwanted damaging attention in the legal arenas, and it will not go away. The class action lawsuits will establish the high ground, grow in number, and gain attention. The proof of the malfeasance, fraud, and forgery will be incredibly easy, breathtaking in implications, and shocking to the sleepy public. The risk of civil disobedience is acute. The directly associated risk of commercial degradation from contract law moving toward a field of abandonment is also acute. The domino effect carries risk to the business and thus the social fabric of the American society. The United States is on the verge of events leading to potential systemic failure. Few attribute causality to the Fascist Business Model broad implementation and secretive endorsement, but it lies at the center.

Update I... the Game... or Why we will ride the Bankers to bottom of Hell. THEY OWN US...Politically..Economically...and Informationally.....

Tuesday, October 5, 2010


By William Poole, Senior Economic Adviser, Merk Investments

October 5, 2010

New York Federal Reserve Bank (Fed) president Bill Dudley’s speech Friday attracted much press attention, as it should have. His speech is correctly read, as in the press commentary, as providing a broad hint of more policy easing to come. During my tenure as president of the St. Louis Fed, I overlapped with Dudley, who, along with being president of the New York Fed, is Vice Chairman of the Federal Open Market Committee (FOMC). I know him to be a competent and cautious policymaker. It is hard for me to believe that he would not have cleared this speech with Chairman Bernanke before presenting.

During the Greenspan era, hints came from Greenspan himself, when he thought appropriate. Greenspan’s hints were less frequent than many remember; indeed, he was widely viewed as talking in riddles much of the time. Policy decisions were made primarily at FOMC meetings, or at least ratified and announced at those meetings. Greenspan, of course, dominated the process, but he always seemed to me to be careful to respect the role of other FOMC members. When I believed the policy course was a mistake, I dissented, as did some others. Although I worked hard to clarify my general policy stance in my speeches, I always tried not to take specific policy positions in advance of FOMC meetings. For one thing, why should I do so if the Committee were about to adjust the federal funds rate in the direction I thought appropriate? For another thing, would I not have misled the market, and damaged my own credibility, if the FOMC went the other direction?

If every FOMC member were to indicate his policy position in advance of each FOMC meeting, the result would be chaotic. It seems to me that Dudley has crossed this line. His logic is clear. Unemployment is too high and inflation too low. Moreover, “…the timeframe over which they are likely to return to levels consistent with our mandate are unacceptable. … We have tools that can provide additional stimulus at costs that do not appear to be prohibitive.” It is hard for me to imagine a stronger statement that Dudley will be arguing for the Fed to buy more assets—the policy discussed at some length earlier in his speech. “Unacceptable” is a pretty strong word.

Given this clear declaration, most likely with Chairman Bernanke’s blessing, what happens if Friday’s employment report is quite strong? One of the things I learned repeatedly is that data reports surprise. And sometimes the surprises are large. The bond market will take quite a hit if Friday brings a report of an increase of 200,000 in payroll employment and a decline of several tenths in the unemployment rate. But more than that. What is the hit to market understanding of Fed policy?

A buoyant employment report is not my forecast. I have no reason to depart from the market consensus of roughly no change in payroll employment and in the unemployment rate. However, surprises happen. What policymakers ought to do is to emphasize the conditionality of policy actions. I always argued that the FOMC would review all the information at hand at the time of the meeting and make the best judgment it could based on that information and the skilled staff analysis. That way, I left open the possibility that I would be dealing with a data surprise and I tried to convey to the market how I would react to it. Dudley does cover himself in his concluding remarks. “Thus, I conclude that further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.” Unfortunately, he provides little guidance as to what might lead him to be more confident and this sentence does not undo the strong language earlier in the speech.

Here is another problem with an unconditional policy announcement, which is how I read Dudley’s speech. A strong employment report might well be explained by some anomaly in the data, and therefore not change the economic outlook. But it would seem very strange to the market if the FOMC pressed ahead on asset purchases shortly after a strong employment report. The November FOMC meeting occurs a few days before the October employment report, to be released November 5. Thus, the September employment report will be the most recent one available to the FOMC at its November meeting.

Finally, it is worth pointing out that Chairman Bernanke has misled the market before. In a speech in early December 2008, he indicated that the Fed might engage in large-scale purchases of long-term government bonds. Bond yields dropped sharply in response. When no such program was announced at the FOMC meeting later that month, yields rose and then rose further when no program was announced at the FOMC meeting in late January. Finally, at its March 2009 meeting the FOMC did announce and begin a program of buying Treasury bonds.

Bottom line: Bill Dudley seems to have provided clear policy guidance to the Treasury bond market, but traders should be wary.

P.S. I wrote the above commentary shortly after Dudley’s speech was reported and I had a chance to read the speech. Now, on Monday, I see that Fed staffers are getting into the act. According to press reports, Brian Sack, in a speech in California, reinforced Dudley’s message. In his speech, he made favorable comments about how expansion of the Fed’s Treasury’s portfolio could contribute to economic recovery.

Sack is not an obscure Fed staffer; he is the System Open Market Manager, which is one of the most important Fed staff positions. The Open Market Manager attends all FOMC meetings and makes a substantial presentation on the financial markets at the beginning of every meeting.

I know Brian a bit, and have very high regard for him as a professional economist and Fed staffer. However, is it wise for Fed staffers to join the policy debate fray a few days before an FOMC meeting? I do not think so. I realize that Sack’s speech includes the usual disclaimer that he is speaking for himself but the chorus of voices runs the risk of misleading the market. Sometimes silence is the clearest communication possible.


Monday, October 4, 2010


So you are able to discuss this subject with a little more expertise at cocktail parties, I thought we might take a stab at it today. We have discussed for over a year now the STRUCTURAL collapse of our economy. In effect that means there are components of our economy that have been destroyed by factors that cannot be repaired by simple monetary and fiscal changes. ie. They are NOT "stimulateable". These are not cyclical inventory issues brought about by supply and demand imbalances.

Here are simple and clear examples. I use these because we can all recognise these. Education is structural. The dumbing down of our students, to me, is one of the more frightening aspects facing us. I won't propose a solution, but I will note some issues confronting it. We are in a global educational race and getting lapped like turtles. The rest of the world has very coordinated CENTRAL planning for their countries with targeted goals in achieving their needs. We are arguing about evolution and sex education in our classrooms still..... When the Russians put the fear of god in us in the late 50's, we put our heads together and had some of the greatest educational effort in our history. We surpassed EVERY country in the world and were number ONE for years. Now we rank 29th....thats right . So keep on "privatizing" education. You are going to reap the horn. Do you think the Cabal's kids are going to be your road and bridge engineers in the future. Do you think their kids are going to be the scientists busting their asses to develop the next polio vaccine? GL there

Manufacturing structural disaster and I quit for today. NAFTA etc. has provided our manufacturing base to be rewarded for shipping american jobs all over the world for cheap labor. THAT cannot come back overnight. ITS STRUCTURAL. It has to be rebuilt. That is going to take policy change and time. So if you think this is fixable with QE and the restoration of CONfidence...which is the game now...sorry. I will not go into the aspects of structural issues such as water, climate, DEMOGRAPHICS, overpopulation, infrastructure. That is all just TOO depressing and we don't need anymore of that.

Buy our aforementioned stocks on pullbacks and enjoy the game.

Friday, October 1, 2010


Keep your eye on the ball. Silver can still be bought at this level for the long term. Maybe we get a nice pullback here or maybe the run goes further....this article gives you some positions to look at when you buy.

The next generation of top-tier silver miners are in the pipeline and will join the likes of Hecla (HL), Pan-American (PAAS) , etc. in terms of production output and of course profitability. This is the time to jump into these stocks as the companies listed below have "de-risked," making these picks safer than their peers.

1.Bear Creek Mining-(BCEKF.PK) – Asset Portfolio are a located in Peru, the most lucrative silver mining country. One advanced mine (Santa Ana) set to commence production in 2012 which will provide cash flow to bring in their second relatively advanced world-class mine (Corani – one of the largest undeveloped silver mines).
2.Fortuna Silver-(FVIF.PK) – Like Bear creek, has their flagship mine (San Jose) in Peru along with a mine currently in production in the second-richest silver country (Mexico).
3.Alexco (AXU) – Set to bring online an extremely high quality mine at Keno Hill, which has enormous upside potential.
4.First Majestic-(FRMSF.PK) – Despite the incredible run it has had the last two years, the upside still remains very lucrative. Although management had said there was no way it would let any peer take it over, it is for a very good reason - keeping First Majestic independent will unlock the most shareholder value. In fact, First Majestic will likely go on the offensive as its strong balance sheet and increasing operating cash flow gives them that luxury. They have done an incredible job executing various expansion projects; I continue to be bullish on it even though I first mentioned it under $3.50.