Pressing Forward

Thu, Aug 23, 2012 - 11:21am

The Pack senses the weakness of The Leader and they continue to press their advantage.

Several have asked me whether or not this is the beginning of the "hot, explosive and historic" rally. When it began last week, it was hard to say. Then I saw the CoT last week and began to gain confidence. The action early this week stoked my interest and the follow-on rally post the FOMC and into today is very impressive.

We have seen already seen a significant move in a short period of time. In the past 10 days, silver is UP nearly 10%. From the open interest, we can see that much of this is short-covering or, more accurately stated, short-covering offset by a nearly equal amount of new buying. This is exactly the type of action I was expecting for the beginning of the "HEH" move. The fundamental key to my expected move has also been put in place. Therefore, yes, I think is the beginning. Emphasis on beginning. We are just getting started. Again, with any trending rally, there will be bumps along the way as profits are realized, however, those will be just bumps. The metals, particularly silver, are headed much, much higher from here. The re-institution of overt QE will only serve to accelerate and exaggerate the size and scope of the rally.

In the very short term, I'd like to see us sustain these levels through the close Friday. Breaking the Battle Royale lines and closing above them for the week would bring a lot of spec momo money in next week and this would only serve to increase the pressure on The Leader. This evil entity must be certainly be aware of this, too, so I would expect them to attempt to intervene. However, if I'm right about the fundamental changes, they may not intervene as aggressively as they have in the past.

A couple of other things for you today. First, there's this interesting pair of stories:

And this from that MarketWatch dude:

And this from Trader Dan:


From Sprott, regarding the "new normal" of negative interest rates and why this is so incredibly destructive.

NIRP: The Financial System’s Death Knell?
By: Eric Sprott & David Baker

On July 18th, 2012, the German government sold US$5.13 billion worth of 2-year bonds at an average yield of -0.06%. Please note the negative symbol in front of that yield number. What this means is that the German government was able to borrow money for less than nothing. When those specific bonds expire in two years’ time, the German government will pay back the original $5.13 billion minus 0.06%. Expressed another way, investors knowingly and willingly bid the German government $5.13 billion in exchange for bonds that will pay no interest and are guaranteed to lose them money on expiration. Welcome to the new status quo.

Germany is not alone. Over the past six months, the countries of Netherlands, Switzerland and France have also issued short-term government debt at negative yields. Like Germany, they’ve been able to do this because European bond investors are so shell shocked that they’d rather park money in a bond that’s guaranteed to only lose a miniscule amount rather than risk losing more in a PIIGS bond that actually pays some interest. In addition, many investors view German, French and Dutch bonds to be cheap options on the break-up of the Eurozone. If the EU currency union collapses, euro-denominated bonds issued by those specific countries may be paid back in re-issued deutschmarks, francs or guilders, which will be far more valuable than the euros that were spent to buy the bonds in the first place… or at least that’s the idea. As a result of this thinking, the bond market auctions for these select countries have seen overwhelming demand, making NIRP (Negative Interest Rate Policy) the new ZIRP (Zero Interest Rate Policy).

The NIRP acronym is misleading, however, because unlike ZIRP, NIRP isn’t actually an official “policy” per se, but rather a symptom of a broken financial system increasingly starved for good ‘collateral’. Aside from those speculating on a Eurozone currency collapse, a large portion of the bond investors participating in NIRP bond auctions are the banks. As the euro crisis has dragged on, banks in perceived “strong” countries like Germany and Switzerland have seen record inflows of deposits from banks in peripheral EU countries, like Spain. As most of these “strong country” banks have been hesitant to lend those deposits out (for obvious reasons), they are forced to park them in short-term government bonds. Moreover, new rules imposed by various regulators such as Basel III have forced all banks to hold a larger percentage of their balance sheet in government bonds, regardless of their country of domicile. The result has been a mad dash into the bond auctions of select “safe” countries just as the pool of available AAA-bonds has been drastically reduced. Banks are piling into NIRP bond auctions today because they have nowhere else to go. This is why nobody seems to be alarmed by the recent ubiquity of NIRP bond auctions – they are merely thought to be a short term phenomenon that will pass in time… just like zero-percent interest rates were supposed to be when they were widely introduced four years ago (sigh).

NIRP is different than ZIRP, however. NIRP causes outright financial destruction. Economies can hardly survive extended periods of ZIRP rates, let alone survive a long-term NIRP environment. It just doesn’t work. Institutional investors like pension plans and life insurance companies cannot earn enough “spread” to function properly. And many aren’t allowed to buy different asset classes that might produce a better “spread”, even if they wanted to. They are stuck holding the AAA government debt issuers – positive-yield, or not.

Negative rates also punish the individual investor. Try going online and using one of the banks’ retirement savings simulators and plugging in a negative expected return – you’ll break the program. The same also goes for the investment advisory business. When so-called safe-haven bonds start to consistently produce a negative return, try charging advisory fees to clients while recommending a 50% allocation to negative-yielding government debt. Advisors can try it for a while, but investors won’t put up with it for long.

The recent emergence of NIRP auctions are a signal that the relationship between governments, banks and investors has broken down. While the market still presumes that NIRP is a short-term phenomenon confined primarily to Europe, the dearth of AAA-assets coupled with banks’ captive bond purchasing suggests it may be structurally enforced for a long time to come. There’s even the potential for NIRP to emerge in the US bond market. As Bloomberg reports, the gap between US bank deposits and loans hit a record $1.77 trillion at the end of July 2012, representing an expansion of 15% since May. “Banks have already bought $136.4 billion in Treasury and government agency debt this year, more than double the $62.6 billion purchased in all of 2011, pushing their holdings to an all-time high of $1.84 trillion.” The current 2-year US Treasury bill is yielding a paltry 0.29%. If something exciting happens in Europe, what’s to stop the bond market’s typical knee-jerk move into US Treasuries from pushing that yield down past zero? Not much. We could be there before the end of the year, especially if the banks continue to gorge on ongoing US Treasury auctions in the meantime.

The question now is how well the financial system can cope in a relentless low-to-no yield environment for bonds. The last four years of low rates have already wreaked much damage to ‘spread’-dependent industries. One need only look at the insurers: In its latest Q2 report, after reporting an 88% drop in Q2 year-over-year earnings, Sun Life Financial stated that if current interest rates persist its profits for the period from 2013 to 2015 could be hurt by up to CAD$500 million. Manulife recently reported a Q2 loss of CAD$300 million, which was mainly attributed to a CAD$677 million charge it took to revalue long-term investment assumptions to account for falling bond yields.

The pension plans are also deteriorating: According to recent reports from BNY Mellon and Mercer, the funded status of US corporate pension plans hit a record low in July 2012. Benefits Canada writes, “The average funded status dropped 2.9 percentage points to 68.7%… while the latest figures from Mercer show that the aggregate deficit in pension plans sponsored by S&P 1500 companies grew US$146 billion during July, to a record high of US$689 billion.” That’s a one-month increase of 27% In the pension business, lower yields on long-term AAA bonds results in higher plan liabilities, plain and simple. As Reuters reporter Jim Saft writes, “To give an idea of exactly how powerful the effect of falling rates is on pension liabilities, consider that, according to Mercer, though US shares rose 1.4 percent in July, the 30-55 basis point fall in discount rates drove an increase in liability of between 3 and 11 percent. In a single month.”

It’s even worse for the public pensions. According to the Washington Post, new pension accounting rules imposed by bond-rating firm Moody’s are expected to “triple the gap between what states and municipalities report they have in their funds and what they have promised to pay out retirees.” If implemented, that new public pension gap will balloon to $2.2 trillion. Michael Fletcher from the Washington Post writes, “Among other things, the new accounting rules from Moody’s and the Governmental Accounting Standards Board (GASB) limit the rate of return on future investments that pension funds can assume for accounting purposes. Most government pension funds assume a 7 percent to 8 percent return, which critics say overstates future investment income.” With the US 10-year bond now paying less than 2% a year, assuming a 7-8% return isn’t an overstatement, it’s a fantasy. Chart 1 shows how the last four years of low-to-no rates has impacted the average Canadian pension plan. Extend that trend another four years and we might as well redefine the entire purpose of pensions altogether.


a. Solvency position is equal to assets divided by liabilities.
Source: Mercer (Canada) Limited. Last observation: May 2012.

Banks are also suffering from NIRP and ZIRP, as evidenced by the performance of Wall Street’s five biggest banks thus far in 2012. Bloomberg writes, “JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley had combined first-half revenue of $161 billion, down 4.5 percent from 2011 and the lowest since $135 billion in 2008. The firms blamed the decline on low interest rates and a drop in trading and deal-making.” (Emphasis ours.) Banks make money on the spread between the interest they charge on loans and the interest they pay on our deposits (this is called the net-interest margin). Chart 2 shows the impact low rates have had on the net-interest margin for the Big 6 Canadian banks, and how tightly correlated their profits are to bond yields themselves. The average net-interest margin for the Big 6 was 2.55% in fiscal Q2 2012, while the average yield on the Canadian 5-year Treasury bond was 1.54%. According to our calculations, for every 100 basis point decline in the 5-year Treasury yield, the Banks’ net-interest margin will fall roughly 20 basis points. All else equal, a 1% drop in 5-year bond yields will result in a -15.6% impact on the banks’ net income. Like the insurers, the persistence of low bond yields hurts their profit margins… and the more deposits the banks take on, the more they are inadvertently forced to participate in short-term bond auctions – thereby supporting the very market causing the margin compression in the first place. It’s a vicious catch-22.


Source: Bloomberg, Big 6 Canadian Banks’ Financial Reports.

From a government perspective – especially governments like Germany who currently issue short-term debt for less than nothing, the current abundance of NIRP and ZIRP bond auctions represent a sweet irony. Here we are, on the interminable verge of collapse in Europe, and at a time when Western governments have never been more indebted, and bond investors are lining up to pay for the pleasure of owning their bond paper! It’s actually quite ridiculous. But no matter how much pain the current low-to-no yield environment causes the rest of the financial industry, governments will not do anything to change their current set-up. No government is incented to proactively raise their bond auction yields for the sake of savers, and barring the surprise emergence of major inflation, no central bank would ever raise interest rates and risk curtailing their expensive efforts to foster growth through money-printing. The banks’ continuing need for safe “collateral” means they’ll buy government bonds at virtually any price, leaving the governments with a “captive” buyer for their bonds. It’s almost perfect for the governments… and as it now stands, unless the banking system diversifies into different forms of AAA-collateral (like gold), or until we experience a default or major inflation – both clearly negative events, investors will be forced to survive with a AAA-bond market that pays absolutely nothing, just like Japanese investors have suffered through for the past twenty years.

Under widespread NIRP, pensions, annuities, insurers, banks and ultimately all savers will suffer a slow but steady decline in real wealth over time. Just as ZIRP has stuck around since the early 2000’s, NIRP may be here to stay for many years to come. Looking back at how much widespread damage ZIRP has caused since its introduction back in 2002, it’s hard not to expect that negative interest rates will cause even more harm, and at a faster clip. In our view, NIRP represents the death knell for the financial system as we know it today. There are simply too many working parts of the financial industry that are directly impacted by negative rates, and as long as NIRP persists, they will be helplessly stuck suffering from its ill-effects.

Although it’s been a quiet summer for “hard assets” like gold and silver, this low-to-no rate environment should prove to be beneficial for them over time. The tide is definitely turning in their favour. Various bond commentators have recently come out in support of hard assets, including PIMCO’s Bill Gross, who opined in his August month-end letter that, “Unfair as it may be, an investor should continue to expect an attempted inflationary solution in almost all developed economies over the next few years and even decades.” NIRP and ZIRP are critical components of that solution, and are here to stay until something unpredictable disrupts the current relationship between the banks and government bond auctions. In our view, the factors that have led to the emergence of NIRP bond auctions are the same factors that will drive demand for physical gold in the coming months: savers have nowhere to go for a “safe” return. It’s only a matter of time before they realize they’ve overlooked a unique financial asset that would perfectly suit their needs. When they do, we would strongly advise them to take delivery. (Turd emphasis added wherever you see bolding).

Also, I urge you to sign up to receive these email directly to your inbox. You can do so by clicking this link:

There's a lot going on and times are stressful. You might think that I'm nervous about the "HEH" summer and whether or not it is happening right now. I'm not. It doesn't matter. Whether or not this is the beginning of the HEH is insignificant as the HEH rally is coming regardless. Of this I am 100% certain.

As I close we are holding strong and continuing to rally at $1674 and $30.70. I'm happy and you should be, too. Relax and live your life with joy.


About the Author

turd [at] tfmetalsreport [dot] com ()


kingboo · Aug 23, 2012 - 11:22am

No frickin way????

podium baby!!!!!

GDP · Aug 23, 2012 - 11:24am

still on sale...

Keep stacking the phyz...going to try and play with the GSR a bit...

SilverTree · Aug 23, 2012 - 11:25am
Bollocks · Aug 23, 2012 - 11:26am
OrangeAlert · Aug 23, 2012 - 11:28am


Electric Boogaloo

Edit...from last thread

Looks like Battle Royale II (Electric Boogaloo) was taken out too.

wildstylechef · Aug 23, 2012 - 11:30am

yaaaaaa Turd!!!!!!!!!!!!!

Got my Turd hat on and making money . The only way to pass a Thursday!!!!!!!!!!!

bernard · Aug 23, 2012 - 11:31am

Admiral Sprott

Arming the cannons!!

Zehme · Aug 23, 2012 - 11:32am

Is this rally for real?

Just got done investing in pay phones.....hopefully silver works out better

clueless one · Aug 23, 2012 - 11:33am
Nana · Aug 23, 2012 - 11:34am

Metals are in Free Flight

Lynyrd Skynyrd Freebird w/ Lyrics
Be Prepared · Aug 23, 2012 - 11:37am
ratioarbitrage · Aug 23, 2012 - 11:37am

A Dollar A Gram

Noticed the last couple of days that ADAG is approaching. May seem strange in Oz Land, but a lot of people on this blue-green ball don't even know what an ounce is, and quite a lot of those people are buying and selling metals. I cannot think of a rounder number and we are about one percent below it.

Other people (even in Oz Land) may anticipate this situation and defend it. If they fail, the hordes in Gram Land will probably worry whether it can be maintained and then immediately set their sights on Two Dollars A Gram. That is the wonderful thing about "1" round numbers - the next one is a whole double higher.

Mr. Fix · Aug 23, 2012 - 11:38am

It's Scary and fun all at the same time.

Global train wreck in progress.

Can't help but watch!

clueless one · Aug 23, 2012 - 11:40am

@ Mr Fix...


schttzngrm · Aug 23, 2012 - 11:40am

Folks, keep mind that this could actually be...


Bernanke "disappointed" so many times during the last couple of months... why shouldn't he do it again next week - thereby crushing the metals and the Euro?

Anyway, 1450 would still make a perfect bottom laugh

Istack · Aug 23, 2012 - 11:43am


Songify This - Winning - a Song by Charlie Sheen

if Charlie Sheen were a stacker he would be winning

maybe he is....

Be Prepared · Aug 23, 2012 - 11:45am

How much do You spend on food each Week?

We all know that with corn and soybeans having been fried over the summer.... the price of food is only going up as it cascades through the food production chain...

Gallup has asked a version of this question as far back as 1943, but has not asked it since 1987. In 1943, an average of $15 per week was spent on food. The final 1987 estimate was $106.

But the increases in weekly food spending over time largely reflect the impact of inflation. On a relative basis, after adjusting prior years' data for inflation to 2012 dollars, Americans are spending less on food now than in the past. The average $151 Americans report spending each week on food today is down from the inflation-adjusted $157 to $214 range Gallup found throughout the mid- to late 1980s, the last time it regularly asked the question.

Adjusting the historical data to 2012 dollars also reveals that Americans' weekly spending on food began to decline in the 1970s, after rising to a high of $234 in 1966 and 1967. That generally downward trend was interrupted by a spike in 1987. (Interesting to note that Gallup hasn't asked this question for 25 years..)


While Americans' spending on food appears to be down compared with the past, this may change quickly if food prices spike in reaction to the worsening drought in the Midwest, which is adversely affecting crops such as corn and soybeans. Food prices may rise by up to 3.5% this year and another 3% to 4% in 2013, according to the U.S. Department of Agriculture.

While Gallup Daily tracking finds Americans' confidence in the economy declining in July, this and concerns about food prices do not appear to be affecting consumer spending in general yet. However, spending may follow suit and take a hit in the near future.

Because young adults and those with higher incomes currently spend the most on food and are most likely to say they ate out "last night," these two groups -- should these negative economic trends continue -- may be among the first to ratchet back the amount of cash they put toward food.

abguy4 · Aug 23, 2012 - 11:46am

turd infested tea leaves and chicken entrails


Calm down troops. I always get suspicious when the "Up-Line" goes vertical - like now.

Historically - and you old-timers will recall - that Saturn V lift-off trajectory has always been accompanied by a sucking sound in the background. The sound of sucking the 'fence-sitters' onto the playing field for a shearing.

I know, I know, this could be "The Big Juan", but just in case......... save the revelry for when we actually have the enemy camp in sight. I've been reading all the turd infested tea leaves and chicken entrails too, and I'm not convinced that we have any capitulation.

Hell, we're not even back to 2011 yet.

Hold yur positions.

dropout · Aug 23, 2012 - 11:48am

Manipulation Continues

Bloombergs Consumer Confidence Survey is heading into the 'crapper.'

Big Wall street money is behind Romney, so a market crash before the election will discredit Obama and make the GOP smell pretty to all the sheeple that still think voting makes a difference.

Higher prices for gold and silver blend into this manipulation, which all together will force the Feds hand into QE III adding further discredit and under cutting Obama's campaign. This helicopter drop of increasingly worthless paper dollars will cause a sharp uptick in inflation, which will be blamed on higher food prices because of the ongoing drought.

We are approaching a critical juncture this Autumn, around election time, as the US dollar will receive support from the perceived 'flight to safety' crowd. As will certain commodities and to some extent bonds, despite real rates in negative territory. Thats when the cartel will once more pull the rug out from under the PM's and ring the cash register one more time.

It will be the last time. The down turn will be short lived. All the current euphoria and over-excitement is feeding into the manipulated game plan. Don't get caught up in the 'happy days are here again' song and dance that the majority are celebrating with. Extreme caution is called for.

I for one will be sitting back in the position of an observer, waiting as I have done for years, for that moment to arrive to strike, having loaded up long ago. Both barrels primed and the hammers cocked! Exciting times indeed!

¤ · Aug 23, 2012 - 11:49am

Whoa...epic TF post

Thanks big, yellow-hatted one yes There's quite a bit there to chew on and digest.

The silver shorts have been left to the wolf pack at this point and to think $31 is right there at this point feels pretty good right about now. Of course, this could be a set-up that we have come to recognize and expect, but then again, maybe not.

At some point it won't be a set-up and it'll be Au/Ag on the run upwards.

Lets just enjoy it and watch the wolves feast some more...

Nana · Aug 23, 2012 - 11:51am

Europe - The Final Countdown

Interesting Title for a song........

Europe - The Final Countdown Lyrics Sync
Swineflogger · Aug 23, 2012 - 11:53am

On a personal note

Apologies up front. But since we are "family" I must let you know I am prepping this afternoon for my third colonoscopy (I am elderly = SS recipient). I have never enjoyed this preparatory protocol but it occurred to me that this time I might fancy myself being Helicopter Ben dispensing $100 bills out my arse to a nation of grateful Sheeple. Now that makes it a rather noble endeavor doesn't it? Have a great day and enjoy the beginning of Turd's HEH Summer.


Swineflogger (Oink to the fourth power)

agNau · Aug 23, 2012 - 11:57am

Short term toppy look to markets....

it will be tough to keep these markets levitated short term w/o that announcement. Now we are seeing a divergence between Miners(equities), and broad market equities. This we knew would happen one day. This is another perception that cannot be allowed to enter the minds of the sheep. With the MACD rolling on the daily, something to close the gap between the two sectors must happen. Personally, I see this ag rally putting the prior rally to $49 to shame. What we know is inevitable to kick the can must happen for this reason as keep the minds of the sheep off the REAL money.

clueless one · Aug 23, 2012 - 11:59am


if that's in response to I feel ya.

but I don't play.. and have my own "indicators"...

if I were in, I'd have sold and taken a very tidy profit...walked away...and enjoyed the rest of my day.

¤ · Aug 23, 2012 - 12:07pm


Good luck and hope to hear from you afterwards that you're doing fine.

Best wishes from all of us yes

boatman · Aug 23, 2012 - 12:07pm



having seen my cousin go in for routine colonoscopy and come out 6 weeks later BARELY with his life....due to a 'nicked colon'.........a mistake.........and my girlfriend's mom almost bleeding out from the butt 3 days after one of these[claimed it could not be their fault]........

i have researched this procedure.......the chances of them saving your life EQUAL the chances of you dying FROM the procedure from infection.......really.

i am betting on my diet..............and the fact that quercitin and cucurmin 2X day have absolutely been shown to completely shrink polyps in 95% of people genetically inclined to colon cancer.....let alone those that ARE NOT..................FACT.

but if you are eating beef everyday then maybe u should have it.

just my take on it is all.

Bollocks · Aug 23, 2012 - 12:08pm

Time for a good laugh...

Bank of England defends QE policy effects Bank of England

The Bank of England makes no bones about the fact that the QE policy is unprecedented

The Bank of England has defended its policy of quantitative easing against accusations that it has made pension savers worse off.

Since March 2009, the Bank has tried to stave off recession by buying £375bn of government bonds, known as gilts.

The aim has been to cut their returns, forcing investors to put their money elsewhere, such as in shares.

The Bank says this has been successful and the net effect has been to make most people better off.

"QE has caused the price of gilts to rise and yields to fall, in turn leading to an increase in demand for, and price of, a wide range of other assets, including corporate bonds and equities," the Bank said.

"That has lowered borrowing costs for companies and households and increased the net wealth of asset holders, both of which have acted to stimulate spending.

"Most people in the United Kingdom would have been worse off without this response, including savers and pensioners," the Bank added.

Bollocks · Aug 23, 2012 - 12:09pm
kingboo · Aug 23, 2012 - 12:09pm

good luck swineflogger........

Fletch - "Moon River"

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Key Economic Events week of 12/10

12/11 8:30 ET Producer Price Index
12/12 8:30 ET Consumer Price Index
12/13 8:30 ET Import Price Index
12/14 8:30 ET Retail Sales
12/14 9:15 ET Industrial Prod. and Cap. Utilization
12/14 10:00 ET Business Inventories

Key Economic Events week of 11/26

11/27 9:00 ET Case-Schiller home prices
11/27 10:00 ET Consumer Confidence
11/28 8:30 ET Q3 GDP 2nd guess
11/28 10:00 ET New home sales
11/29 8:30 ET Personal Income and Spending
11/29 10:00 ET Pending home sales
11/29 2:00 ET November FOMC minutes

Key Economic Events week of 11/19

11/20 8:30 ET Housing Starts
11/21 8:30 ET Durable Goods
11/21 10:00 ET UMich Sentiment
11/21 10:00 ET LEIII
11/21 10:00 ET Existing Home Sales

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