The Audacity of MOPE

273
Thu, May 16, 2013 - 11:49am

With the metals down again today, I thought it was time to spread some information, not misinformation or disinformation.

The common MOPE regarding the rising U.S. stock market and potential Fed "tapering" is that finally, after four years of fits and starts, the U.S. economy is recovering and growing based on the improving economic statistics and burgeoning housing recovery. So is that really the case?

Yesterday, we discussed the fallacies of the latest BLSBS data and, as any regular reader of ZeroHedge knows, over the past 90 days almost every key metric of economic activity has "disappointed". Just today we had:

And, again, that's just today. The meme is that everything is finally getting better. Really? Really?? Hmmm. Let's go back to that housing starts thingy. As discussed yesterday, there's a certain LAW called The Law of Supply and Demand. For those who failed Econ 101, think of it in terms of a chart with a vertical axis and a horizontal axis. In it's most basic form, it looks like this:

What this is showing you is that price exists at the intersection of supply and demand. If you increase the supply or decrease the demand of an item, the price equilibrium is reset lower and price falls. Conversely, decreasing supply or increasing demand has the impact of raising prices. (See, it's not complicated. Maybe if you had spent more time studying and less time at the bar, you might have had a higher GPA!)

So, what does this mean for our supposedly robust housing recovery? While admitting that this is not the be-all-end-all, these four charts should be enough to give you pause and prompt you to consider whether the mainstream media is giving you the facts or just a heaping pile of MOPE.

If you're going to build a house, an apartment complex or an office building, you need to acquire a number of things. Most of the process is summarized quite neatly by Thornton Mellon in the clip below:

For the purposes of this discussion, however, let's keep it simple. For our house, we'll need lots of lumber for construction, copper for wiring and plumbing, aluminum for all the HVAC stuff and steel for the support columns and crossbeams. Again, price is a function of supply and demand so one might expect that a "robust" housing sector would be causing increased demand for these raw materials. One might expect that but one would be wrong.

Let's see, how's that lumber market doing?

And I think we all know that ole DrC hasn't been doing too well, either...

Uh-oh. Zero for two. Maybe aluminum and steel are faring better? Nope.

Ahh, but what do I know. I'm just a dope with a MacBook (that's for Turdle ). But it sure looks to me that there isn't much of a housing recovery going on. And if there isn't a housing recovery, then the U.S. economy isn't getting any better. And if the U.S. economy isn't getting any better, then tax revenues won't be increasing. And if tax revenues won't be increasing, then the federal deficit won't be falling. And if the deficit isn't falling, then the Fed will have to keep propping up the bond market. And if the Fed has to continue propping up the bond market, the idea of them "tapering" is simple nonsense. And if tapering is nonsense, explain to me why the metals are once again falling this week.

Well, the past three days, it's all started in London. I think I recall that Ranting Andy has a term for this action but I can't remember what it is. What I do know is that when the selling starts at 2:00 am New York time and carries on until about 7:00 am New York time, the selling is originating in London. And who's in London? Just the bullion banks, that's all, doing their dirty deeds to slant the market in the thin, pre-Comex trading, trying to set the tone for the spec momo HFT money to come charging in at the 8:20 EDT Comex open. It's not complicated and it's all right here for everyone to see:

For today, at least, their efforts have been thwarted by all the crappy economic news and we've got a bit of a bounce on our hands. (That hat is still looking tasty, though.) Maybe, just maybe, we're getting a double bottom painted onto the charts? We'll see. Time will tell.

One last thing to discuss today. You know, back in the day, over two years ago when silver was soaring, there was a lot of talk about Comex defaults and commercial signal failures. I have to admit being sucked in a bit by this back then. Obviously, it didn't happen and I've since been very wary of this kind of talk. Again, if we've learned anything these past three years or so its that the primary power held by TPTB is the power to postpone the inevitable. That said, the Comex gold inventory numbers are really beginning to capture my attention on a daily basis.

We discussed this a bit yesterday but it's worth going over again today. After JPM reclassified another 160,000 ounces of gold from Registered (able to be used to for contract delivery) to Eligible (not ready for delivery), the TOTAL Comex registered inventory fell again yesterday and it now stands at just 1,676,000 troy ounces or about 52 metric tonnes.

Recall that every Comex gold contract is for 100 ounces. This means that the Comex registered vaults only have enough gold on hand to physically settle just 16,760 contracts. Big deal, you say. So what, you mutter. And you may be right. Most likely, The Shell Game & Charade will continue through the clever reclassification of more than enough rehypothecated gold from Eligible to Registered. OK, maybe. But chew on this for a minute.

The first "delivery" month for gold this year was February. That month, the total number of contracts standing for delivery totaled more than 13,000. This was somewhat odd in that that was nearly more than August, October and December of 2012 combined. That got my attention. Then, when April delivery rolled around, just 6,600 initially stood for delivery. Crisis passed, right? February was just a one-off. An outlier. Uhhh, nope. Over the course of the month, money continued to flow into the April contract for immediate delivery. These buyers were ponying up 100% margin and "jumping the queue" to some extent in that they were seemingly unwilling to wait for June. In the end, when it was all said and done, the Comex ended up delivering to 11,632 contracts in April.

And now here we come toward June. First Notice Day for the June contract is two weeks from tomorrow, the 31st. Again, on that day, the June13 stops trading and all contract holders must put up 100% margin in order to indicate their intent to take delivery. As of yesterday, the total open interest in the June contract was still 200,477. No doubt the vast majority of these are paper traders who, as we approach the end of this month, will sell or cover and roll into August. However, some will hold, intent upon taking delivery. (Maybe if you're Shanghai and you're currently completely cleaned out of gold in your vaults, you might take delivery of a few contracts? Hey, a guy can hope, can't he?) Of course, the question is, how many?

Again, as of this moment, The Comex only has enough Registered gold to settle 16,760 contracts. For some perspective, when we were 11 days out from FND for the April contract, the OI for April was 196,135. When we were 11 days out for the Feb13, the OI was 200,441. So, having the current June OI stand at 200,477 tells us very little. However, we must watch this very closely in the days ahead. Let's keep an eye on Comex vault changes and compare that to the daily drawdown of June open interest.

OK, that's all for today. Once again I plead with you to keep the faith and stand defiant. The laws of supply and demand are currently impacting paper metal which, in turn, impact the price of physical metal, too. This cannot and will not last forever. Hang in there.

TF

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  273 Comments

Stock_Canines
May 16, 2013 - 1:21pm

@Turd

Not trying to Mr. Contrary all of the time, just trying to understand why my investment thesis has blown up in my face. Wife not too happy these days, and I am feeling a tad jaded.

NonoverlappingMagicCerealTF
May 16, 2013 - 1:22pm

@TF re: hamster

Even if that's the case, understand that Augatha and Hamster are one and the same and they work for The Perth Mint.

Also understand that he is and has always been almost entirely ideologically aligned with you.

StevenBHorse
May 16, 2013 - 1:23pm

More CBO

Budget and Economic Outlook 1999-2009 $B
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Revenue 1,815 1,870 1,930 2,015 2,091 2,184 2,288 2,393 2,500 2,611 2,727
Outlays 1,707 1,739 1,779 1,806 1,881 1,951 2,032 2,086 2,166 2,255 2,346
Deficit/Surplus 108 131 151 209 210 233 256 307 334 356 381
Gross Federal Debt 5,579 5,669 5,743 5,772 5,810 5,831 5,839 5,805 5,753 5,682 5,587
Actual Budget Results 1999-2009 $B
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Revenue 1,827 2,025 1,991 1,853 1,782 1,880 2,154 2,407 2,568 2,524 2,105
Outlays 1,703 1,789 1,864 2,011 2,158 2,292 2,472 2,654 2,731 2,978 3,518
Deficit/Surplus 124 236 127 (158) (376) (412) (318) (247) (163) (454) (1,413)
Gross Federal Debt 5,606 5,629 5,772 6,198 6,760 7,355 7,905 8,452 8,951 9,986 11,874
Average Projection Error % vs Actual 1999-2012
P+1 P+2 P+3 P+4 P+5 P+6 P+7 P+8 P+9 P+10 P+11
Revenues 1.3% 6.1% 10.3% 13.2% 14.8% 15.1% 15.4% 16.7% 19.6% 24.4% 28.4%
Outlays -0.2% -3.8% -7.0% -10.2% -12.8% -15.8% -18.8% -22.8% -26.7% -32.8% -38.2%
Gross Federal Debt -1.1% -4.2% -9.7% -16.7% -24.2% -30.9% -37.5% -48.4% -64.7% -90.0% -114.3%
Projections from CBO Annual Report 2013-2024 ($B)
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Revenue 2,708 3,003 3,373 3,591 3,765 3,937 4,101 4,279 4,496 4,734 4,961
Outlays 3,553 3,618 3,803 4,067 4,300 4,542 4,811 5,078 5,350 5,691 5,939
Deficit/Surplus (845) (615) (430) (476) (535) (605) (710) (799) (854) (957) (978)
Gross Federal Debt 17,047 17,864 18,479 19,143 19,915 20,769 21,711 22,729 23,784 24,911 26,052
Projections using the average CBO error from 1998-2012 ($B)
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Revenue 2,673 2,820 3,024 3,115 3,206 3,343 3,469 3,563 3,617 3,581 3,552
Outlays 3,560 3,756 4,069 4,480 4,851 5,260 5,718 6,235 6,777 7,555 8,210
Deficit/Surplus (887) (936) (1,045) (1,365) (1,645) (1,918) (2,248) (2,672) (3,161) (3,974) (4,658)
Gross Federal Debt 17,228 18,613 20,274 22,344 24,728 27,185 29,849 33,725 39,171 47,328 55,828

FYI this was the projections that they published in early 2013. I didn't bother updating with the newest projection as they are no better at making projections than a chain smoking monkey.

Also, someone that is posting with two separate accounts is a FUCKING LOSER, and should be banned for life.

Neigh

ag1969
May 16, 2013 - 1:27pm

@ Stock

Do you really not understand why your investment thesis has blown up in your face? It seems to me you have been coming here for a while. Do you not read any of the posts or comments or is it a reading comprehension problem? And if you are honestly trying to figure this out, do you really turn to the Washington Post and the CBO to try and put the puzzle together? WTF?

NonoverlappingMagicCereal
May 16, 2013 - 1:30pm

@ag1969

Do you really not understand why your investment thesis has blown up in your face? It seems to me you have been coming here for a while. Do you not read any of the posts or comments or is it a reading comprehension problem? And if you are honestly trying to figure this out, do you really turn to the Washington Post and the CBO to try and put the puzzle together? WTF?

So the only explanation for a PM investor feeling doubt is that he is stupid, illiterate or gullible?

Urban Roman
May 16, 2013 - 1:31pm

Well, then

A big shout-out to our friends at The Perth Mint.

I like your products.

But I still have you on my 'Ignore' list.

ag1969
May 16, 2013 - 1:34pm

Loinlapping

"So the only explanation for a PM investor feeling doubt is that he is stupid, illiterate or gullible?"

I never said this loinlapper. As a matter of fact, I said nothing close to this. Don't put words in my mouth.

Hagarth
May 16, 2013 - 1:34pm

Where are the Stops? - Thursday, May 16: Gold and Silver

Below are today’s likely price locations of buy and sell stop orders for the active Comex gold and silver futures markets. The asterisks (**) denote the most critical stop order placement level of the day (or likely where the heaviest concentration of stop orders are placed on this day).

See below a detailed explanation of stop orders and why knowing, beforehand, where they are likely located can be beneficial to a trader.

June Gold Buy Stops Sell Stops
$1,397.00 $1,368.00
**$1,400.00 $1,350.00
$1.410.00 **$1,321.50
$1,418.50 $1,300.00
July Silver Buy Stops Sell Stops
$22.77 $22.06
**$23.00 **$22.00
$23.45 $21.50
$23.84 $21.12

Stop Orders Defined

Stop orders in trading markets can be used for three purposes: One: To minimize a loss on a long or short position (protective stop). Two: To protect a profit on an existing long or short position (protective stop). Three: To initiate a new long or short position. A buy stop order is placed above the market and a sell stop order is placed below the market. Once the stop price is touched, the order is treated like a “market order” and will be filled at the best possible price.

Most stop orders are located and placed based upon key technical support or resistance levels on the daily chart, which if breached, would significantly change the near-term technical posture of that market.

Having a good idea, beforehand, where the buy and sell stops are located can give an active trader a better idea regarding at what price level buying or selling pressure will become intensified in that market.

The major advantage of using protective stops is that, before a trade is initiated, you have a pretty good idea of where you will be getting out of the trade if it's a loser. If the trade becomes a winner and profits begin to accrue, you may want to employ "trailing stops," whereby protective stops are adjusted to help lock in a profit should the market turn against your position.

By Jim Wyckoff

Orange
May 16, 2013 - 1:35pm

The Bernanke Agenda - It Isn't What You Think It Is

Bohemian posted this on the last thread.

Everybody should read it. Isn't Jackson Hole sometime late August? The end of the K experiment is perhaps in sight?

https://seekingalpha.com/article/1437121-the-bernanke-agenda-it-isn-t-wh...

agNau
May 16, 2013 - 1:36pm

The battle still rages.....

over whom will be in charge of the new currency................................... https://www.zerohedge.com/news/2013-05-16/petrodollar-petrogold-us-now-t... As was MY theory long ago posted here. The pressure applied to the Euro to remove it from possible replacement.... The economic and military pressure applied to those offenders of the current system.......with their use of weapons of mass destruction. They should know better than to trade outside the dollar. Afghanistan, Iraq, .....then moving forward to the other "Axis of Evil" (George Bush guidestones) Iran, North Korea...... Syria, Libya................................ A line formed beneath the main adversaries to the dollar to the east. History shows........Currency Wars....... Trade Wars........... Hot Wars.

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