Lawyer up!

HSH Nordbank AG et al v. Barclays Bank Plc et al, No. 652678/2011;
Sealink Funding Ltd v. Countrywide Financial Corp et al, No. 652679/2011;
Landesbank Baden-Wurrtemberg et al v. Bear Stearns & Co et al, No. 652680/2011; 
Sealink Funding Ltd v. Bear Stearns & Co et al, No. 652681/2011.

The lawsuits accuse the banks of packaging large amounts of high-risk mortgages by such issuers as Countrywide Financial now owned by Bank of America, and Bear Stearns and Washington Mutual, now owned by JPMorgan, in pursuit of higher profit.

These are the latest cases where it's bank vs. bank suing each other into poverty over toxic mortgage deals. In case you are wonder who the hell Sealink is... they are a ferry company. Stick with boats guys.
I am losing track of all the cases but in the end it won't be the Fed, Obama, Merkel or anyone else who will deliver hope and change. It will be the blood sucking lawyers who will be the only ones who will be able to spare some change. Hope already left town to parts unknown. Have at it boys.

In the meantime the Attorney Generals are trying to come to a cohesive and comprehensive 50 state agreement with MERS etc. There are a couple of AG's holding out against the bought and paid for AG's. Hopefully they are holding out for the rule of law and not a bigger personal payout. We shall see.

Now we know exactly why Jamie Demon and the other lesser demons are lawyering up. 

Bearish chart of the day

The financial cliche "past performance is not a guarantee of future results" is pretty pointless, since anyone looking for a guarantee shouldn't be investing the money he inherited in the first place. (It can be assumed the money was inherited because anyone stupid enough to expect a guarantee couldn't possibly have earned any money to invest himself).

While the past is not a guarantee of future events, it certainly can be a predictor. Human intelligence would never have evolved if this were not the case.

Here's a chart I've been referring back to since the spring: the CCI (index of commodity prices) with the orange 233-day moving average drawn in (233 is a Fibonacci number and appears to be slightly more accurate as a lower bound than the 200-day, which is also drawn in as a green dotted line).

This chart cannot predict the future. But it does tell us that since 2002, the steadily rising 200 and 233-day moving averages have been broken only twice, despite being tested >25 times. Once in 2008, and then a few days ago. Moreover, a very important horizontal line of support (see red-green line) was broken almost simultaneously. So, to the extent that past patterns suggest future events, I'd say the recent break of the 233-day moving average is significant and unlikely to reverse in the short term. Strikes me as an early indicator of 2008-like deflationary pressure ahead, as the moving averages are poised to roll over and have their second period of decline in almost a decade.

Gold and Silver Bugs, Meet Your Enemy: The Robot

It is more powerful than JP Morgan. More influential than Goldman Sachs. It can override any action taken by Ben Bernanke in less than one millisecond. It does not care how much metal is in Comex warehouses and it knows nothing about quantitative easing. If it goes up, it buys. If it goes down, it sells. Gold and silver bugs: meet your true enemy, the robot:
While many if not most gold and silver bugs believe every move in gold and silver is manipulated by JP Morgan, the Fed, the bullion banks, etc (the “Cartel”), the reality is that most markets, commodities in particular, are driven by systematic hedge funds. These funds use computer algorithms to decide when to buy and sell. Several of the largest include John W. Henry & Company and FX Concepts, which have had great success over the years both in performance and asset growth. As shown below, systematic funds dominate the CTA space. According to Barclay Hedge, systematic funds control $250 billion of assets at 2Q11, whereas discretionary traders (i.e. humans) have only $30 billion under management.
While each systematic fund has its own unique characteristics, the strategies are all generally the same: trend following/momentum. That is, they buy whatever is going up and sell whatever is going down. They don’t care about fundamentals, or news flow. All they care about is price, and which way it is moving. Given that these systematic funds comprise the vast majority of capital trading commodities, moves in commodities, particularly gold and silver will thus likely not be explained by fundamentals. Furthermore, given that many of these systematic funds operate similar strategies, they are prone to buying and selling all at the same time, leading to dramatic moves like the sharp rises and declines exhibited by gold and silver in recent months.
Thus, when you see dramatic moves in gold and silver on little or no newsflow or if it moves contrary to fundamental conditions, do not blame manipulation or The Cartel. Blame the robot.

Not the Onion news I swear

I read a lot. Probably too much of the doom and gloom stuff if I am honest.
I was browsing the "Irish Times" and it is a wealth of comedy this evening.

The first headline that caught my eye was this "Irish Bank Officials called in to advise Greeks on Crisis" maybe it should read "Pigs in search of lipstick
If you are a Pig in search of lipstick then the guys to call are Blackrock and they will only charge you 30 Million Euros.
"Bank of Ireland and AIB both passed the EU tests the previous year, but the results were undermined when the Government was forced to seek bailout loans from the EU and IMF four months later.The subsequent Irish stress tests of the banks in March 2011 were not carried out exclusively by Central Bank officials, however. As part of their scrutiny, they called in consultants, including US asset manager BlackRock Solutions, to assess losses on the loan books of the Irish banks.BlackRock has since been recruited by the Greek central bank to evaluate the country's banks, which would be among the losers in a default by Greece. The Central Bank spent €30 million on external consultants to verify the tests on Bank of Ireland, AIB, EBS building society and Irish Life and Permanent. The results of the tests raised the cost of bailing out the banks by €24 billion to €70 billion. About €64 billion is being injected by the State."

Next up is some entertainment from the Italians Italian PM is a Pimp Daddy. Words fail me you just have to read it.

Next up is a real doozy. I just hope Obama or his advisers don't read the Irish Times. NAMA (bad loan receiver and all round catch all for bad property and worse paper) "The agency wants to introduce a scheme where it would waive 20 per cent of the purchase price of a home on its books if values were to fall further over the next five years." For feck sake. Of course they are going to fall further because no one in their right mind is buying property in Ireland these days. They are desperately trying to unload but can't do a short sale. If they default they may even face debtor prison. Yes, as in Charles Dickens novels, debtor prison.
Of course the only people who will be allowed to buy these properties are the same frigging idiots who unloaded them onto NAMA in the first place.

Now onto the surreal. Paedophile supporter runs for President. Yes, David Norris, Presidential nominee, dates a man who is a child rapist. He supports the view that all boys need mentors and sees no problem with old men raping young boys as he read somewhere the Greeks did it. I'll say no more other than Ireland needs to bombed back the stone age if this animal is voted in. I haven't looked at all the candidates but at last count there are seven. This includes Euro Song contestant "Dana" and Martin Macguiness who was and might still be a high ranking member of the IRA. I am sure there must be a pig farmer in the line up as well but I haven't verified.

I saved the best for last. Govt wants to No more Cadillacs for welfare recipients and Welfare recipients seek more money. 
The first link is a doozy "The department’s comments followed the release of figures by a Labour Party Senator which suggested one unemployed married couple with four children were receiving over €1,700 a week in payments – more than €90,000 a year under various schemes.This is more than twice the average industrial wage."

The second is even better. Some Wanker Banker of a failed and now nationalized bank wants to remove the €500,000 pay cap so that they can attract talent? The same sort of talent that put the bank under or is this special talent that they haven't seen before?

Ireland doesn't have a statue of Liberty but if it did it might read; "Give us your poor, your tired, your Paedophiles, your Wankers longing for a free ride" 

Quick gold and silver update

I'm in a hurry, but there's been so much volatility, that I had to create a few updated charts.

Gold really sliced past the 144 day-MA, but never touched the 200 day. Interestingly the line I fit to the 144-day MA (blue) actually serves as a pretty good trend line over the past 3 years, and gold did bounce off of that.

While gold was shooting up to $1900 the question was "is this time different?" Was this the big breakout gold bugs were waiting for, or just another example of frothy upside movement that would be brought back down to keep its very steady post-March 2009 moving averages on their linear track. Looks like the latter. We're seeing the moving averages (pink, green, above) start to head downwards just as they looked to be breaking up and away from the linear trend.

The weekly chart had been equally vague. I pointed out that nothing really game-changing happens until gold closes a week above the top black line, or else, rolls over but bounces off of the center black line. Whereas a drop to $1600 would be "par for the course." Well that's what we got -- a drop to the lower black line, only much faster than in the past. But encouragingly, the weekly chart suggests a bottom might be in. I still see a re-test in the cards. Unless that lower black line is broken, gold bugs should be very happy with this correction, consolidating lots of gains and shaking out the weak-handed momentum chasers very quickly for another major move up.

Silver, not so much. Here's the ugly chart, to which i've added what i think is going to be the next (very wide) trading range for silver in the coming month or months. If we break emphatically above $34 or below $26 ... watch out.

Here's the new "bullish" chart I reintroduced on my last post. Despite the huge overnight dip to $26, I'm going to go ahead and say the lower blue trend line has held as of now; we've closed right at it the last three days. Let's see if this can last.

The fall out

After the bloodbath of the past few days, as we try to evade the ravens circling overhead, let's remember that what does not kill a secular bull market only makes it stronger. A very similar sell-off to this one happened in 2008, silver falling from $22 to under $9. Yet the sell-off could not kill the silver bull, so it emerged even stronger for its next move up.

But that move up didn't start for another year. A chemistry analogy here is apt. Knowing the final outcome of a chemical reaction tells us nothing about its rate. The final outcome of a piece of paper is disintegration, as oxygen slowly eats away at it. But without the right catalyst (e.g. a match), though the paper will slowly turn yellow and start cracking into fragments, it will still be recognizable as paper for a very long time. So can it be with fiat currencies and the value they lose over time. PM bugs are confident that the dollar will eventually achieve its intrinsic value and equilibrium point (i.e. zero), but they should not extend this confidence to where it does not belong: the rate of its decline. Depending on the catalyst, the dollar can collapse tomorrow, or it can take a decade. Or longer.

In that regard, my gut feeling is that silver will be dead money for a while. It will not be making its way back to $40 any time soon. The chart is just too atrocious, the psychological damage of a 25% decline in 36 hours too scarring. I suspect some kind of foul play, because even Enron didn't crash that fast as revelations of the most egregious fraud emerged. There's an almost comical, artificial aspect to the price action of the past 2 days, but I'm not really qualified to speculate about the eminence grise behind the curtain. A commenter on Kid Dynamite's blog asserted that claims for silver's irreplaceable industrial usefulness are quite exaggerated. If so, then the violence of the price action could possibly reflect silver's industrial expendability + its still somewhat tenuous position as a safe haven relative to gold. Could we be confusing industrial potential with industrial usefulness?

Regardless, at any point in space and time, past and present, a silver coin has been (and is) regarded as something valuable, the way a gold coin is. So, while I'm not quite convinced of Sprott et al's claim that silver is the investment of the decade, I think if gold has plenty of upside, silver will at least follow it. And if, upon following gold up, it breaks $50 … watch out.

In that spirit of optimism I will present a bullish silver chart (bullish if silver does not fall below 30, which I give less than 50% odds). Back in June, I had a post titled "Silver 2003- ????" where I drew two trend channels in two different ways. I've been going with the steeper trend channel since then (mostly because it fit the weekly data better), but the less steep trend channel now looks better:

Now, we could break the lower blue trend line and be stuck in 2008-like doldrums (which I think is more likely). But, if we don't, precedent tells us that we will jump to the top trend line within 5-10 months, by which time the top trend line will be well over $50. So let's hope support around $30 is not broken next week!

And, so as not to expend all my optimism on silver, here's the monthly chart for gold. Frankly, a red month here is healthy, especially if we don't go below the August's starting point, when we first broke out of the wedge.

But my more sober prediction is that we will move to at least the 144-day MA (pink), currently at $1580, and thereby slow the ascent of that MA and the 200-day (green) as well.

Weekend roundup

This will be a running commentary of anything of interest that pops up on the intertubes
worthy of a mention. Feel free to add guys.

The first one is easy. GM nailed it. He nailed it before with other TA posts and he will probably continue to nail it.

Second is Martin Armstrong. Martin has, in the recent past, tried to cheer lead us out of harms way via what Jim Sinclair calls MOPE. Not so much this time. See the post below.

This one is from the Irish Times examining the difference between two small countries and their different approaches to the crisis. We are talking about Ireland and Iceland here. Iceland had the advantage of NOT being part of the Euro. Willing to listen to the electorate, letting the bankers go &*^* themselves and not willing to take any crap from the IMF. Not willing to compromise or prostitute their values or their social programs.
Unlike Ireland, Iceland was not willing to be sheep led to the slaughter fed on decades of corruption and lies by constantly electing the most ignorant bunch of hick, muck savages lost in religious and political rhetoric that had no relevance 50 years ago. Sound familiar?
No? I guess you haven’t been watching the Republican debates or just skipped to the Ron Paul parts.

Jim Sinclair has some comforting advice for those of us who are having trouble sitting down this week due to the uncomfortable bent over position we have assumed most of the week.

There was a bunch of guys sitting around yapping about this and that. Mostly hinting about injecting liquidity here and there. Just google "G20 meeting" in case you are not already sick to your stomach of Central Bankers. It's Europe's turn to ramp up the QE this month or at least ramp up the rumors.

CERN discovers faster than light?
This will be interesting story. Is it a quantum trick? This will get weird as physics always does but it will turn a lot of theories inside out.

Kid Dynamite has a piece on confirmation bias and how we have to be careful of not falling in love with our own views.
This caught my eye "main reason: the miners have been reduced to peripheral bullion plays, and are no longer needed to serve the purpose of exposure to metals – we have pure plays now that make it easy to gain targeted direct exposure to gold, silver, platinum, palladium, and, soon, copper. This is the main reason, and the most worrysome: you can see that the ratio trend appears to be drifting lower: that’s not an insane outcome, if more investors look to protect themselves by getting gold exposure from pure play bullion instruments instead of mining stocks…
2) risk of mismanagement/bad management, political/national risks, etc."

KD has hit the nail on the head here as to why the miners suck as an investment. I'll take it one step further and say we are lazy. We sit in our couches, we surf the web looking for gurus, information on investment choices and look for someone, anyone to give us a clue and in the end the easiest choice to make is to buy GLD, PSLV or whatever the flavor of the week is. If those ETF's are filled with miners they will still suck. The average investor wants the easy answer and that is not HL or SVM. In my humble opinion unless the miners start sweetening the pot by paying real dividends and ramp up the marketing beyond their mediocre, half assed news releases they will remain dead in the water in the short term. Long term we will have to wait for Jim Sinclair's big $200 days to make a few bucks on these dogs.

This article is my favorite and it has nothing to do with miners or gold or the end of the world:
1500 man hours with 3 tools and a few thousand bucks. I give you the Hobbit house:

Just another article on kickbacks, conspiracy, bribery etc. Not a mob article but banker article. Wiseguys in wingtips.

Martin Armstrong ... Meltdown

Surveying the damage

No critical damage in gold yet. Tomorrow is huge (and next week too).

On the daily chart, I've been saying this month that I expect the purple dotted line to be tested, and it was. So far it has held.

Weekly, the same thing: I mentioned Sunday that we've touched the top black trend line 3 times in 3 years. Is this time really different? We won't know unless the center line is tested and holds. Well, it's being tested and we're going to find out in the next few days if it holds.

This silver chart, on the other hand, looks godawful. Atrocious. It was just really important for the lower blue trend line to hold, and when it didn't, the threat of something like today was in the cards. A historically bad day in silver.

Silver seems to have fallen out of a bearish rising wedge (see below). But, if the 200 day moving average can hold, we're OK. So, once again, tomorrow is key (and next week).

The long term weekly chart also shows that we are right at a critical point. The 34-wk MA was broken, which is a bad sign, but if the trend channel can contain the price, we're ok. Otherwise, silver can easily plummet another $5 to the grey dotted line.

So grab your popcorn!

Wynter Benton Report Card Semester 2

Ever since Wynter Benton came blazing back on the scene for a second round, a number of claims and statements have been made. Let's see how they check out (my grading).
This is an important post for me because it ends a train of hope I once had that the Wynter Benton Group might have been able to take on the forces of the mighty money machine. For the record I do believe that the group is a real group of traders, but I now believe that most of what they put out there is either misleading or dishonest and serves no real distinction beyond that of any message-board chatter.

For now, my mind is changed about Wynter Benton (and Robert LeRoy Parker was right about them). I am no longer their friend. I will not reference what they say in order to help time any trades, and we recommend that others don't. I still don't know what they hoped to achieve with their messages - other than to try and move markets in a direction favourable to themselves - but their latest round of messages dug themselves into quite a hole which damaged their credibility somewhat. Here are some of the points made since they reappeared on the scene, and my notes on each.
  1. The JPM Derivatives Bomb date (the topic of the very first 'Benton returns' message) was originally set to go off at 60 days of silver above $36/oz, which on the charts starts somewhere around July 12th. The actual date was not specified and discussed at length by the guys at tfmetalsreport (forum), who determined that this must have been referring to calendar days (because it wasn't specified). wynter_benton then posted more recently on the 16th September to say that it was in fact trading days, which would extend the deadline for JPM to somewhere in early October. The bomb is supposed to manifest itself in the form of a significantly higher price of silver, and a significantly lower shareprice of JPM when they report their quarterly earnings (and in theory show losses in derivatives). wynter still expects JPM's shareprice to be as low as $20 sometime in October. The end of the world folk always have an issue when a date is specified and not reached. The share price of JPM would have to have some serious pummelling in the next couple of weeks for the story to have any credibility, however note that the current downdraft in the markets may be a desperate attempt to pull silver below that crucial $36/oz mark.

  2. Without Stops? Wynter did warn that the morgue would become very desperate, and advised 'do not put stop losses on your futures positions'. Presumably this is to prevent the price movers from shaking out a bunch of stops and arrest the momentum of any sudden fall in the price. Fair enough, but this is dangerous advice for any monkey trying to play the 'skim the value from other players' game in the futures markets. Who does this benefit and can you really take their advice at face value?

  3. A Sovereign Central Bank will apparently shortly announce they are accumulating Silver as a reserve asset [link]. Okay, that's fair enough but the idea is not new. In fact, I wrote a bit about this here and here (back when Amber was reading our board). While I still like the idea - until we see some kind of official headline/statement from an actual sovereign central bank, then the news is of no better quality than SGS saying that the central banks are awash with tungsten bars.

  4. The 'Not enough physical Silver' meme gets repeated quite a few times in the new messages, along with the threat of them 'busting the Comex' if silver goes below $36/oz [link]. A year ago I would have believed this, but these days I am well aware that there is a lot of physical silver available, and that the market is not really as tight as it is made out to be (for example, take a look at the logistics of Eric's Delivery). wynter_benton also takes the line that taking physical off the market will hurt JPM [link]. As far as my research has taken me, the opposite is actually true - a tighter physical market gives more power (over price) to the people who have the most of it ** ... specifically the bullion banks and (yep) JPM themselves as the custodian of SLV. Just remember that the inventory of SLV was as high recently as 360 million ounces, whereas it is currently about 320 million ounces.
There is also the timing of the Greece default as called by Benton's sources, I won't discuss it but in order for the sources to be credible, the announcement about Greece's specific terms of default must be known by end of September. When the market has already priced in a default (reflected in the greek bond market) I find the Greece default news pretty unremarkable.

So I guess we just wait and see until the end of September unfold. I actually do hope my pessimism is misplaced, and Wynter delivers the goods but I'm no longer betting on it. Also, there IS a wildcard. The size of the silver market is still very small and could be cornered very easily by whoever had deep enough pockets. For example, the entire stock of SLV can be purchased for about 14 billion dollars. But therein lies the rub - this team is playing with less than that amount. And if that's the case, I wonder what makes them think they will win their battle with the FED.

Notes and links:
  • Original Report Card Semester 1
  • Discussion Forum at TFMetalsReport, which discusses the posts
  • Yahoo Boards wynter_benton messages
  • ** re: my claim that 'a tighter physical market gives more power to the manipulators', this is based on my research to date and is entirely debatable (pretty much a separate topic). My primary thoughts are that the bullion banks can make millions of ounces appear and reappear in the market at will and this is made all-the-easier if there are no large chunks of bullion not in their control.