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

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turd [at] tfmetalsreport [dot] com ()

  273 Comments

Prize Fighter
May 16, 2013 - 1:38pm

In conjunction with people

In conjunction with people talking about Bretton Woods II and Bernanke forgoing JH, I found these statements from Pope Francis rather interesting. Regardless of what you or I think of the Pope, his words are everything to a lot of people. Things are lining up and pumps are being primed IMHO. Lets not forget how quickly and unprecedented the Papal leadership changed in order to deliver this statement either.

Pope Francis urges global leaders to end 'tyranny' of money

Pope Francis has attacked the “dictatorship” of the global financial system and warned that the “cult of money” was making life a misery for millions.

https://www.telegraph.co.uk/news/religion/the-pope/10061700/Pope-Francis-urges-global-leaders-to-end-tyranny-of-money.html

Silver_investor
May 16, 2013 - 1:41pm

@Stock_canines

The Congressional Budget Office's projections are worthless. They're based on unrealistic assumptions about future economic growth and federal revenue and spending levels. That said, the federal budget deficit (the difference between federal receipts and outlays) for the current fiscal year, which ends Sept. 30, will likely be under $1 trillion. I looked at the Monthly Treasury Statement for April, which came out last week, and I was surprised to see that there was actually a $113 billion surplus (gasp!) for the month of April. The cumulative deficit through April is just under $488 billion, and there are only 5 months left in the fiscal year.

I just read an article in USA Today stating that the Treasury has taken steps to avoid breaching the debt limit??? Yet the statutory limit was "temporarily" suspended at the end of January of this year. So why would the Treasury be worried about breaching the debt limit? That makes no sense to me.

When the federal government is running budget deficits it must borrow to pay its bills, which is where the federal debt comes into play. But since April 1, there has actually been a net decrease in the federal debt of about $10 billion. (The federal debt level fluctuates from day to day based on issuances and redemptions of all types of Treasury debt.) The budget surplus in the month of April and the lower debt levels could be due to increased federal revenues, but that's likely attributable to Americans taking profits in 2012 in order to avoid higher future tax rates. But it seems that something else is going on. I personally think that the federal government is worried about another downgrade.

Prize Fighter
May 16, 2013 - 1:47pm

Hey, if you search for "Pope"

Hey, if you search for "Pope" on USA Today, guess how many entries there are?

https://www.usatoday.com/search/pope/

666 Entries were found for “pope”
Northern Border
May 16, 2013 - 1:47pm

Reminds me of 2008

Deja Vu !

No, I dont mean the strip club on Washington Ave in the Warehouse district of Minneapolis but holy moly Batman, I just say gas was at $4.19 today. That was a 30 cent jump in the last day or two. I dont follow inventory levels but isnt "consumption" of gas lower these days because less people are actually working ??? Maybe they failed ECON 101 and the very first thing we learned on day 1.

Anyway, my point is I remember back in 2008 when gas reached this level and not to much longer the house of cards collapsed. Any Turdites in the Minneapolis area that would like to meet up for a beer sometime, hit me up!

Just saying !

NB

Northern Border
May 16, 2013 - 1:47pm

Reminds me of 2008

Deja Vu !

No, I dont mean the strip club on Washington Ave in the Warehouse district of Minneapolis but holy moly Batman, I just say gas was at $4.19 today. That was a 30 cent jump in the last day or two. I dont follow inventory levels but isnt "consumption" of gas lower these days because less people are actually working ??? Maybe they failed ECON 101 and the very first thing we learned on day 1.

Anyway, my point is I remember back in 2008 when gas reached this level and not to much longer the house of cards collapsed. Any Turdites in the Minneapolis area that would like to meet up for a beer sometime, hit me up!

Just saying !

NB

Big Buffalo
May 16, 2013 - 1:48pm

thanks Turd

I do enjoy the reality of supply and demand. There are times when one trails the other, but will eventually catch up. Broadly speaking, simplicity does help us see the forest through the trees. In gold and silver, even at this level, which is catching up with which? I suppose that is the million ounce question. Anyway, this whole housing business has me a bit on edge since I'm currently in the closing process of another home. It's a fixed upper and my family is super excited about the potential. So we'll be trying our best to help the economy but spending about $100k in the next year on renovations. I'll be sure to post pictures.

Prize Fighter
May 16, 2013 - 1:50pm

22.124 - 22.128 gap

Couple gaps here but our regular shady .004 gap starting at 22.124 is the one to watch. That's 2.6% lower from here and some sweet short profit for sure.

dropout
May 16, 2013 - 1:50pm

Just Sitting Waving at the Passersby

Huge amount of negative sentiment towards gold & silver by so-called "professional" investors.
Markets making new all-time highs daily, on nothing but Fed high octane financial fumes!

Fundamentals for higher PM prices have never looked so good.

Physical demand for gold & silver around the world, is going off the charts.

BE RIGHT AND SIT TIGHT.

Never a truer phrase spoken, from where we find ourselves as PM owners & market observers.

So, just sit back, smile and wave at all the sheeple on their way for a good shearing.

We are right and sitting tight. Life is good. Don't worry - be happy now!

ag1969
May 16, 2013 - 1:50pm

Prize Fighter

I almost got the feeling the Pope was talking about the USA until I read this:

"Unchecked capitalism had created “a new, invisible, and at times virtual, tyranny”, said the former Cardinal Jorge Bergoglio. "

I am now trying to think of a country where capitalism has actually been practiced recently.

Unchecked Facism had created "a new, totally visible, and at times brutal, tyranny." There Pope, I fixed it for you.

Stock_Canines
May 16, 2013 - 1:51pm

@ag1969

I have been a member here since day 1. I do comprehend what is posted here. I also understand, or at least I think I do, why the equity markets are at nominal highs. I am less sure about why gold and silver are in the crapper, and even more unsure of why the entire list of bullish reasons for gold and silver have actually worked against a higher gold and silver price. Is it really so simple as free money to banks is used in part to short pm markets and hedge funds pile on for an easy predictable ride. I mean you act like it is obvious why gold and silver stink and why my investment thesis has blown up in my face, but I wonder if it so simple? No one here, that I remember, was saying 3 - 6 - 12 months ago that the likely path for gold and silver is down. I mean sure, we sit here today and see miners crushed, gold at 1380 level, silver at 23. You are absolutely positive you know the reason? You didn't expect this, did you? When my wife says, "you investment decisions have caused our net worth to decrease significantly" is the appropriate answer, "oh, it's simple honey. All the reasons we thought gold and silver should rally, QE to infinity, Yen debasement, universal rate cuts, stagnating economy, jobless recovery, etc. have actually all caused the metals to crash and the DOW to surge because the Fed is supporting the Dow and fighting the PMs with the creation of easy money?" I mean, if it is all so simple, why didn't anyone here say, "hey, the Fed wants to support the Dow for purposes of MOPE, the Fed is the entity creating 80 billion a month in free money, where do we think that money is going to go"? Every day I read intelligent people who surmise different explanations for why we are where we are and where we are likely going. But, according to you, it's a reading comprehension problem. Nice. So tell me oh wise one, where will gold be in a year.

273 Comments on The Audacity of MOPE

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