Ramblings - Let's Talk Dollar, Gold, Silver, Crude and Freedom
One of the major challenges in compiling and writing this website every day is in keeping it all coherent. Since I am currently only able to offer one or two threads per day, I struggle to include all that I feel is pertinent into one, tidy and neat little package. Today is particularly challenging in this regard. Please bear with me.
So, where do we start? How about this? As you know, my Lind/MF account was transferred to RJObrien back in November and the charts I use every day come from the RJO website. When I open the charts window, the default screen is a chart of the ES, which is the heavily-traded, mini S&P futures contract. Every day, I have to look at this silly chart and, every day, it makes me want to puke. Of course, there's nothing to see here. No. The Fed, through the Primary Dealers, isn't slowly goosing the market higher. Of course not. Rrrright... What kills me is the horseshit nonsense that is constantly peddled be the media and the paid, disinformation agents of the blogosphere. Equities can rally 20% in 10 weeks. No "bubble". Not "overbought". Never. However, you get one little sustained move in the PMs, even against constant Cartel suppression, and every deltabravo shill from Christian to Nadler comes out of the woodwork to defame them.
Next, let's talk about the U.S. dollar index or, as we affectionately call it around here, The POSX (or The Pig or Pigatha). While it's true that The Pig is, roughly, flat year-over-year while gold is up 25%, DO NOT discount the impact that moves in the index have upon the daily fluctuations in PM price. This has always been the case but it is especially pronounced here in 2012. In the post-MFG world we now inhabit, the paper metal trade is dominated by The Cartels on one side and HighFrequencyTrading computer programs (WOPRs) on the other and most WOPRs are programmed to buy or sell precious metals based upon minute movements on the POSX. So, what we have are PM "markets" that are subject to wild gyrations based not upon their own fundamentals but, instead, the fluctuations in the dollar brought about by ever-changing headlines out of Europe and the Middle East.
Below are charts of The Pig. First, there's a refresher on the makeup of the POSX. Remember, the POSX is an index. This means that it is a measurement of dollar strength against a "basket" of other currencies. As you can see below, though, the primary component is the euro so big moves in the EURUSD have a disproportionate impact on the POSX.
The Pig has been desperately trying to stay above 78.50 for the past two days. Will it hold in there again today? Answer that question and you'll go a long ways toward predicting the next move in PM price.
Below are your PM charts. As you can see, gold is still being suppressed below 1750-55. Silver, however, continues to show some real strength and I'm getting increasingly enthusiastic that it is about to break higher and race off toward 35 and 35.50.
As we wrap up the "chart section", here are a couple of looks at crude. Study these for a moment because there are some headlines below that will be affecting the fundamentals of this market soon.
Now, onto those headlines.
It certainly appears that the U.S., NATO, Israel and Iran have all come to the conclusion that conflict, or outright war, is inevitable. Maybe someday soon we can discuss the unpredictable, geo-political, economic and biblical implications of all of this. For now, you should at least be considering how to prepare yourself financially for what seems to be coming over the horizon. Some of you will undoubtedly buy some crude oil futures or options but I know that most of you don't fiddle around with that stuff. My friend Mister Hyde trades the UCO, which is a 2X long crude oil ETF. It's probably not something anyone should sink big bucks into but, if the world is going to end, you might as well go out with a little extra fiat in your pocket.
And Syria is all part of the equation.
I could keep posting headlines but I think you get the point.
The metals have pushed higher today because of dollar weakness brought about by headlines of an impending Greek "deal". If the recent pattern holds, look for these headlines to be refuted by later today.
As expected and right on cue, there's this:
Many have asked what I think will ultimately happen here. (Keep in mind that I'm the guy who thought that S&P would never downgrade U.S. debt.) To me, it's quite clear after Santa filled in the missing pieces last week.
This is all about the word default. On March 20, the Greek government faces a 14.5 billion euro debt payment. Currently, they are unable to make this payment. If they miss this payment, they will be in default. No ifs, ands or buts about it. Regardless of how someone might attempt to spin it, missing your payments is a default. End of story. From Merriam-Webster:
Definition of DEFAULT
1 : failure to do something required by duty or law : neglect
2 : a failure to pay financial debts
If a "deal" is not struck before 3/20/12, Greece will be in default. As Santa has alerted us, a Greek default will trigger a payable event for the Credit Default Swaps issued on Greek debt and 97% of the Greek CDS were sold by the Big 5 U.S. banks. I HIGHLY DOUBT that this triggering event will be allowed to take place. Sometime in the next 5 weeks, A DEAL WILL BE STRUCK which restructures the Greek debt and avoids "default". The impact will be very much precious metal positive long-term. Why?
- A large proportion of the Greek bondholders are European governments and European banks. The "haircut" that the bondholders will be required to take will stress the already-underfunded balance sheets of many of these entities. So cash must be created to shore up these balance sheets. However, by charter, the ECB cannot simply print money from whole cloth like the U.S. Federal Reserve. Can you say LTRO to infinity?
- But LTRO will not be enough. The IMF will also be used to funnel dollars to European banks and governments, too, and from where does the IMF get most of its funding? The U.S., of course! Can you say QE to infinity?
- If, on the off chance, a deal is not struck and the Big 5 TBTF banks get put "on the hook" for billions in CDS, the FED will simply create the funds necessary for the banks to slide to Europe.
The final bullet point is EXACTLY what The Fed did in 2008. Recall that, back then, AIG was the issuer of billions of CDS. When the underlying financial instruments (CMOs, CDOs, etc) went into default, AIG was on the hook for billions that they didn't have and the TBTF bank balance sheets were insolvent without the CDS "insurance". What happened? The U.S. government took over AIG and settled the outstanding CDS debt by having the Fed print money to be funneled to the TBTF banks.
Ultimately, the only question is: Who is going to be stuck with the losses that the Fed will paper over? In the end, it doesn't really matter. The Fed will print dollars to soothe the crisis. These dollars will be sent to Europe either directly, through the IMF and ECB, or indirectly through the CDS payoffs by the TBTF banks. Billions....maybe even trillions...of new greenback is about to be created. The only protection you have against the purchasing power destruction of this event is to buy and hold physical gold and silver.
I feel I must take a moment to touch upon the "robo-signing" settlement, too.
Lest you think otherwise, all this "settlement" represents is covert QE for the bankrupt states of the U.S. The banks, which will be forced to shell out the $26B, clearly do not have the funds to do so. From where will the money come? The Fed, of course! As they have for 3+ years now, The Fed will simply journal over $26B in newly-printed dollars for the TBTF banks to distribute to the states. Only a fraction of this money will ever reach the homeowners who were screwed out of there foreclosed homes. The states will simply include these settlement dollars in their "general accounts" and use the proceeds to cover their varying budget shortfalls. It is all just a gigantic scam constructed as a way to covertly give the states the money they so desperately crave.
Lastly, I find myself spending more and more time considering and discussing the ever-encroaching powers of The State. In ways both large (SOPA and NDAA) and small (The Catholic Church vs Obamacare), American freedoms are being constantly nibbled away by the government piranha. It is also happening at the local level as the story below shows. The American nanny-state is now so expansive and inhibiting that children in California are no longer able to dig holes in the sand at the beach. Sadly, it is likely too late to reverse this tide of government intrusion upon the most basic and miniscule components of your daily life.
That's all for today. I've been banging away here for almost 3 hours and it's time to get on with my life. As I close, I see that the metals have barely budged while I've been at it so at least I haven't missed much. Watch out for volatility though this afternoon and overnight. Not only will the headlines be moving The Pig around but The Cartels would very much like to see silver under 34 and gold under 1750 at the Comex close tomorrow.
Keep the faith. TF