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

margaritatime
May 16, 2013 - 2:01pm

@northern b

that does not reflect the national avg, but yes, gas is certainly higher up there right now. https://www.twincitiesgasprices.com/Minneapolis/index.aspx

gas here is nearly a dollar cheaper https://www.coloradogasprices.com/

now if $4.19 were the nat'l avg i would be concerned, but it looks like a regional squeeze.

ag1969
May 16, 2013 - 2:02pm

@ Stock

you said, "just trying to understand why my investment thesis has blown up in my face"

I find it hard to believe that you can't fathom why your investment thesis has blown up in your face. Unless you believe that Gold and Silver are not criminally manipulated. I also questioned why you would look to the Washington post and the CBO for answers as to why your investment thesis has blown up in your face. And you take away from that that I might be the one person on earth that knows where gold will be in a year?

Cry Me A River
May 16, 2013 - 2:04pm

APMEX JUNK SILVER BUY BACK PREMIUMS JUMP AGAIN--NOW AT $2.50

APMEX is proving they want that $25 per oz. junk silver price to remain stable.

$18046.6/715 = $25.24 =$2.50 Over Their Silver Bid Price:

And Here's The Chart:

NonoverlappingMagicCereal
May 16, 2013 - 2:09pm

RE: CBO and washington post

I also questioned why you would look to the Washington post and the CBO for answers

I don't get what's so wrong about looking at all available data and news sources, even if you think it's biased. There do exist in the world responsible journalists and economists, even if you think they are exceedingly rare.

If there is a chance, however small, that there will be an eventual global economic recovery that sours the all-PM strategy, you will only be aware of it by keeping your ears open to more than one perspective. You will never hear about it from Zero Hedge, or Jim Sinclair or anyone else in that sphere. Good news just isn't their bag.

Prize Fighter
May 16, 2013 - 2:09pm

ag1969

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

That is true. I do think though that any system "unchecked" can morph into facism, especially capitalism because the turn of truth is so slow in the eyes of those who want to believe. These systems are only as good as the people who run them.

I'm not a great student of political terms and classes, so my thoughts are pretty basic on it all. People let these terms roll off their tongues without much thought and I'm reaching for the dictionary. My strongest talent, IMHO, is systems and spacial reasoning and not the fine points on these things. I just recognize the Pope calling for some kind of economic change sets the stage for CB and Catholics alike. I don't know what he envisions as a checked-market, but his followers are now spiritually ready for change.

Stock_Canines
May 16, 2013 - 2:13pm

@ag1969

I wasn't turning to the CBO for answers, but a colleague sent me the article and implied that perhaps that the contents explained in part why gold and silver 'weren't working out so well'. My response could be, "it's all BS", but after stating that refrain for 18 months, the words and the speaker begin to appear delusional. After a point, it begins to feel like the old adage, the definition of insanity is doing the same thing over and over and expecting a different result. My biggest concern is that the gold and silver bull market is dying before our eyes, and I will hold for lower and lower prices the whole time claiming that the media and the government and the world financial powers are all lying to us. I don't expect you to be the one person who knows where gold will be in a year . . .sarcasm . . .kind of like your 'reading comprehension' question . . . unless you were just being an ass.

May 16, 2013 - 2:13pm

Ripped from ZH

Interesting that this "disconnect" also begins in March, coinciding with the drops on the four charts posted.

ag1969
May 16, 2013 - 2:15pm

PF

We are just seeing two sides to the same coin. IMHO, one of the things TPTB would love to blame for this mess is capitalism. I agree with your assessment that they are very interesting comments at this time in history from a new Pope. I just don't want to see capitalism take the fall when we have not had free and fair markets for quite some time now. Thank you for posting that article and your compelling theory.

SilverSurfers
May 16, 2013 - 2:22pm

Kaye

at KWN indicated that the "drift" up in price allows the bullion banks to sell to china, for the double profit, as we here hoped, that china is a huge buyer, and so, there is the allignment, but yours looked at the "peeps" after hours upward drift as average joes, to indicate a good sign leading into a bull mode, where his is based upon china continued buying, thus both based on continued buying, one based on lay viewing, and of late the drift has been solid, going into the smashes, and so, my after hour peep drift and Kaye's china drift, seems to be in lock step, but then Kaye no doubt has way better tools than yours, and hence a better view, but expert or decade long lay perspective, met at KWN, reaching the same ultimate conclusion as to market action, though the buying sources differed much. And that is why kaye's get paid, and your dont.

Howard Roark
May 16, 2013 - 2:23pm

Galt´s words and philosophical reasons on the new normal

Consider the last thirty days.

Consider the amount of messages here at the community that reflect anxiety and frustration regarding what as been happening to our precious monies (either warm as the sun or bright as the moon).

Consider the technical analysis that have been posted (that had collided with the EE action). All the arguments and so on.

And now read this:

"You did not care to compete in terms of intelligence - you are now competing in terms of brutality. You did not care to allow rewards to be won by successful production – you are now running a race in which rewards are won by successful plunder. You called it selfish and cruel that men should trade value for value – you have now established an unselfish society where they trade extortion for extortion. Your system is a legal civil war, where men gang up on one another and struggle for possession of the law, which they use as a club over rivals, till another gang wrests it from their clutch and clubs them with it in their turn, all of them clamoring protestations of service to an unnamed public´s unspecified good. You had said that you saw no difference between economic and political power, between the power of money and the power of guns – no difference between reward and punishment, no difference between purchase and plunder, no difference between pleasure and fear, no differece between life and death.”

This piece is directed at MOPE, MSM and EE (plus governments), and it fits like a glove.

So the reality (the new normal) cannot be understanded rationally. I´m not saying that the TA are futile, not a bit. But we should understand the cognitive dissonance operating in MSM and the message that it conveys. The TA and discussions on what is being happening to our metals (or the economy for that matter) should be supported on our ideas, on our philosophical reasons to hold the portions of sun and moon. Those didn´t change. Not a millimeter, not a nanometer. In fact they are just right, regardless of the value measured in currencies of our objective expressions of value (aka portions of sun and moon).

We are philosophical right. Even if we face some hard choices along the way (Socrates was put to death remember?). The Thugs chose the path of decay and death. Period.

But, if we are in the metals for the right philosophical reasons, the new normal narrative is BS. Just that. Not a test to our reasons, just a test to our resolve.

Salut to the Community (especially to those that face hard choices regarding solvency)

Howard Roark

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