Bankster Shills

The thing I love the most about this blog is that the contributors are a collection of very different individuals, with very diverse views. I think it's fair to say that we're all generally bullish on the PMs, and that we have declared positions in gold and silver, but apart from that our only unifying trait is that we love debate, getting to the heart of the matter, and seeking to dispel myths and shoddy thinking as often as we can. If we see something we disagree with, we probe and challenge - including our fellow contributors' views.

Unfortunately, this approach has done little to endear ourselves to certain quarters of the PM community. Although that's a shame, it's perhaps understandable given that we're often a bit cheeky and polemic (or just good old-fashioned devil's advocates). However, what is less understandable is how a brand new PM meme has started doing the rounds: i.e. that the Screwtape Files is a fully paid-up psyops front for bullion banks.

The abuse in some parts of the blogosphere has been predictably banal and depressing, spiked by Brian O'Flanagan's recent question about the relationship between ZeroHedge and Sprott's PSLV. Here are a few of my favourite recent comments about Screwtape, taken from a number of sites, including ours (the asterisks are my addition, for those of a nervous disposition):

Tyberious: Those little piss ant, SLV, GLD, c*ck suckers[...]What the f*ck! They shall have no quarter here![...]I know these guys a paid shills for JPM, or whatever banks' d*ck they suck! Look nothing against homos, but these guys are whores! For all those that are new, these guys (KID D*CKINMYASS [sic], and butt buddies) pray on the ignorant and pretend that all is well, like there is no manipulation in the PM markets, that SLV and GLD actually have the metal they report to have and they attempt to spread misinformation and worst of all they f*cking do it for money!

PaidInFiat: Jeanne, eat a d*ck. How's that for an explanation? [and, later] Jeanne darc, gobble a donkey d*ck, you elf.

Silver Stacker: I don't doubt what you say, but I don't believe it either. It equates to me stating that the contributors to this blog like to suck each others d*cks and blow loads in each others faces.

Bay of Pigs: They are useless tools on gold or silver, IMO. Better off to ignore them. They have deadpanning gold and silver and supporting the MSM status quo since I can remember. They don't acknowledge anything being wrong/corrupted in the markets (especially the COMEX).

Green Lantern: That must be where the trolls go after they have finished flaming Turd on the main blog. I guess they need a place to wet their whistle also. From simply a journalistic point of view, did you notice that his entire blog is dedicated to flaming individuals/sites and point of views and rarely puts forth his own world views?

Ledbedder: Looks like the boys and girls at the other blog are green with (fake gold) envy.They think because they write "articulately" that they can fool some folks. Go right ahead, try. I honestly do not know anyone that can make an argument against the PM's not going higher over the next few years. Yes, 2011 wasn't their best, but look at the 10 years before that. Guess a decade isn't enough data to go on. That was my roughly written 2 cents as I didn't get a degree from Brown or HAAAAAAAAAAAAAAAvard. One last thing, look down your noses at us because we type swear words, who cares? Tell us you don't let out a good "F*CK" when you bang your shin on the coffee table. Liar.

SGS: Yeah. These morons, especially kid dynamite [sic] are part of a paid JP group to discredit us.

Anonymous: Screwtapefiles is just a front site run by the Bankers. Zero credibility there.

Anonymous: screwtape has zero credibility. The people authoring there have been exposed and countered many times before. It's a site of the banking shills, by the banking shills and for the gullible.

SGS: Dont come back here. You realize that I know who you are now. My tech seems shitty on the front end, no[t] so bad on the backend. You've been warned.

Lovely. What is very striking about such posts (and there are many more) is the level of visceral hatred for those who do not necessarily share their world view or - more importantly - the world view of their heroes. It is also hard not to pick up on a certain amount of deep-seated auto-erotic tension, which I imagine would be better released in a more amorous rather than aggressive way - but I'll leave that train of thought to the psychologists.

However, what is utterly conspicuous by its absence is any attempt to engage with the question at hand, to refute it through evidence, or to present a coherent counter-argument. Responses are limited to either "you're a c*ck sucker" or "you're a bankster shill".

Now that's a bizarre approach. Let's say for a moment (for the sake of argument) that they're right, and the only things we love in life are violent oral sex and getting fistfulls of dollars from JPM. How, exactly, does that refute the facts we have pointed out, or answered the questions we've posed? It's simply a diversionary tactic to avoid answering the difficult questions. So we are forced to ask: why would such diversionary tactics be used by certain elements of the PM blogosphere? If what they say is an open-and-shut case, why respond with abuse and allegations, rather than simply presenting their evidence and explaining their reasoning?

It is obvious to anyone who has ever read Screwtapes that we are not paid up Bankster Shills. We all give our time free to this site, despite us all having extremely busy day jobs and family lives. You will notice that there are no adverts on this site, and there is no donation button either. We make not one penny from this site by any means. We strive to hold the highest levels of integrity, and make full disclosures when necessary.

Sadly this cannot be said for other elements on the web. Some sites earn serious cash from their traffic, and others have direct links to those with a corporate interest in promoting precious metals. Not all sites - and I want to stress that. There are good guys out there. But suffice to say that the supposedly 'independent' content and advice peddled on certain PM sites is often as partisan and sponsored as that which emanates from certain parts of the MSM about which they scream foul on a daily basis. Corporate shills by any other name. I will expand on some of these themes in future posts.

Most of us are long the PMs, and most of us accept that there is a degree of manipulation in the PM markets. But we refuse to subscribe to the cartoon version of evil empires and wicked witches; a world of Zionist plots and farting bears. If a claim is made, such as Sprott's delivery problems or DSK's imprisonment at the hands of the Cartel, or a problematic gold bar in a vault, then we will investigate it. If we find it to be true, we say so. If we find it to be false, then we say that too.

This refusal to blindly accept all we're told, or to unthinkingly cheerlead the latest silver memes does not make us 'anti gold' or 'anti silver'. It does not make us 'perma bears'. And it certainly does not make us Bankster Shills. We value your comments, and we want you to challenge us (politely). If shown the evidence we will change our views on the spot.

We are beholden neither to the banks and Wall Street, nor to those with an interest in selling as many coins and bars as possible.

And it is that which makes us the most independent PM site on the web.

Silver and the bubble curve: where is the Smart Money heading? (Clue: it ain't silver...)

This post will make me about as popular as a fart in a spacesuit, I know. Certainly the PM blogosphere will react with a mix of mockery and vicious hatred. And even my esteemed fellow contributors at Screwtapes will probably run out of eyebrows to raise at what follows.

But I don’t care. There is so much nonsense talked about the PM markets on the web, and so many people are being unwittingly dragged into cult-like devotion to lumps of metal they think will make them millionaires, that I believe it’s becoming ever more important to present every possible side of the case.

So here’s an article about how silver is not the only fruit, and anyone whose sensibilities this offends can b(l)og off and instead read the latest spittle-flecked pant scrapings from SGS (which will no doubt be about Blythe destroying nuclear power plants in Japan at the request of Mossad, or – the new comment section favourite – aliens hoping to steal silver from the COMEX).

Bubble curves and the ‘Smart Money’

Most PM investors are familiar with this kind of

graph, not least because it is touted all over the place as a way of supporting the assertion that silver was not in a mania last year, and will not be in a mania if the price doubles (or triples) this year. Now is the time that the ‘Smart Money’ should enter, so we’re told.

This is not new: in April last year, the Blogosphere buy screams were deafening at $47, cautioning their readers against missing the boat to $250 – 500. The Smart Money should get in immediately they said. They’re beginning to say the same thing again, with silver at $29. Now don’t get me wrong: I doubt I could be more bullish on silver at the moment. I have a nice stash bought at $27 which I’m very much looking forward to selling at between $38 – 42. Claims that Screwtapes contributors are ‘perma bears’ couldn’t be further from the truth.

But the silver chart has nothing of the Smart Money about it. Real silver bears would say that actually we’re between the ‘Return to normal’ and ‘Fear’ stages. I personally don’t agree with this (QE, and its effects on commodity prices, the continuing push for a mania in the tiny community that is silver, and the fact that silver is not currently too far from its trend line suggest otherwise). However, at best – I mean, in the most positive possible interpretation – we are somewhere in the Mania phase.

I’ll repeat: this does not mean that silver won’t now rise (possibly quite dramatically) for the next few months. I think it will, and I hope to profit from it. But Smart Money it ain’t.

So where should Smart Money go now?

Imagine I’m a greedy investor (I am). I don’t want a x2 or (very optimistically) a x3 return from what’s left of the silver mania in 2012. I want a x10 or a x20. Like the clever swine who bought silver at $5 back in 2003. So where is the Smart Money going at the moment? First, let us examine the qualities which potential investments should have in order to be considered Smart Money.

1) The vehicle (stock, bond, commodity, whatever) should have been in a lull (i.e. stagnant) for a considerable period of time. Like gold was between 1998 and 2002 (range: around $270 - 350) or silver between 2000 and 2004 (range: $4 – 6).

2) It will thus have been written off by all pundits. The price gets so low that no-one will sell. But new buyers aren’t drawn in because of the perceived opportunity cost of having their money sat stagnant in a non-performing asset. Like silver in 2003.

3) The vehicle is, however, sound. In other words it is not a company facing bankruptcy or a commodity or good that no-one will ever need again. The business is still profitable (perhaps only just) or the country (referring to bonds, here) is still solvent (also perhaps only just). In the case of silver, it was always going to be valued for jewellery and industrial uses and by ‘eccentric’ retail investors, so there would always be some support to prevent the price dipping (much) further or – in the worst case scenario – to zero.

4) There are clear upside events on the horizon, which – once they take hold – will bring in new buyers, and potentially very quickly. Using gold as an example, we could have said that the Smart Money buying at $280 was anticipating currency devaluation, Middle East crises/oil shocks, whatever. The point is that although the Smart Money did not know the timescale, it knew (or hoped) it would happen. These people are now getting seriously paid (and, in some cases, doing the selling...)

So what assets are there currently floating around that look like they fit these criteria?

Enter stage left, the bank stocks

Boo, hiss, shame!, get out of town, you fully paid-up bankster shill...! We always knew you were a JPM hack...! I bet Blythe sticks [insert large object of choice] into your [insert orifice of choice] and you [insert degree of pleasure of choice] it.

Now that’s out of the way, let’s have an objective look at the situation. I’m going to use the example of Lloyds-TSB (LON:LLOY), simply because it’s a UK company so I’m familiar with it and the back story, and have some experience from trading it for a while. But I’ll make my disclosure right here: I’m long Lloyds-TSB (and RBS and a few other banks) and I hope to initiate new positions in the next few months. However, I receive no payment from, or have any kind of professional relationship with, any bank (which is a shame, because it would mean I could stop wasting my time blogging and finally land that foxy Brazilian lingerie model of which I’ve always dreamt).

Lloyds-TSB, like many banks, lost most of its value post-2008. In fact, it went from 591 BPC (British Pence) in 2007 to a low of 21.84 BPC in November 2011. In short, it has been in a period of decline/stagnation for over three years (criterion 1). Its chart sure looks like the Smart Money part of our bubble curve:

The overwhelming popular sentiment is that Lloyds-TSB (and I again stress, I could've picked many other banks here - the use of Lloyds-TSB is merely illustrative) is going nowhere, and that the shares will not recover. However, no-one's selling their shares because, frankly, if you had a position at 590 BPC, you’re unlikely to sell just because the price has shifted from 22 to 24 BPC in daily fluctuations. If you’ve held through all the trauma to date, you’re about as strong a hand as one can imagine (criterion 2).

Lloyds, however, is not bankrupt. Sure, they’re not the money-sucking machine that they once were, and they’ve had a few years of losses, but it looks like 2012 will be the first year since the crash that they declare a profit. Their customer base (on the high-street banking side) is as strong as it ever was, and their efforts to recapitalise have been successful. Their exposure to foreign debt is not great (and has, in any case, been insulated against by their recapitalisations and UK government protections). So, on criterion 3, it’s looking pretty good too.

[An aside: There are always those who will say that the Western banking model is dead, and that the shares will go to zero. Maybe they’re right. But my response to this is that if the UK’s largest banks go bust, then we’ll be so royally [insert expletive] that the best we can hope for is a life of trading acorns and eating our grandmothers and less-favoured children. Good luck buying tinned bacon with your silver in such circumstances: all that awaits a genuine apocalyptic financial meltdown in the US/Europe is death, destruction and chaos. Your PMs will either stay in your possession for approximately a femtosecond or live out their days buried in whatever forest in Montana or Wales you left them. Regardless, the loss of your investment in banking shares will be the least of your problems.]

Now, back to reality, 2012 is likely to see a dividend paid (again, for the first time since 2008) by Lloyds-TSB. And, as mentioned above, its first profit announcement since 2008. Even more important is the fact that the UK government has a 43% stake in the company, at an average of 74 BPC per share acquired during the part-nationalisation. This actually came about not directly because of the 2008 crash, but rather because Lloyds was heavily arm-twisted into bailing out the doomed HBOS during the crash. In any case, the UK government wants its money back. Further, it has to get its money back, as the UK faces decades of austerity if its investments in Lloyds-TSB and RBS don’t pay out. This part should appeal to those who implicate TPTB in every financial machination: the British government has a massive interest in doing whatever it takes to get the share price of Lloyds-TSB at least back up to 74 BPC. Otherwise, ‘good-bye’ ministerial cars and Yes, Prime Minister, and ‘hello’ back bench obscurity. What would you bet on? I rest the case for criterion 4.

Are we at the end of the Smart Money phase for bank stocks?

The night is always darkest before the dawn breaks, goes the old cliché. Continuing with the example of Lloyds-TSB, last year was very dark indeed. The Euro crisis hit it hard, as did the threat of extra regulation and the temporary loss of its chief executive, António Horta-Osório. All of this pushed its share price down to what feels like a bottom of 21.84 BPC. Tellingly, trading in this particular bank stock has since been exceptionally volume-heavy: investors are piling in. It’s risen nearly 50% since then (from 21.83 to 29.97; cf. silver’s move of $32 – $26 – $29 during the same period), and shows no sign of abatement even in the face of potentially very bad news. On Friday, when the news of France’s downgrade was announced, it dipped in line with the rest of the FTSE, and then surged on new buying to finish nearly 3% up on the day.

Why should this be? My theory – and I accept that it is only a theory – is that we are nearing the end of a Smart Money phase in some bank stocks. Those banks that remain profitable and relatively insulated against further risks, and for which most risk has already been priced in, seem to have very little further downside and a hell of a lot of upside. For silver to make a x10 return, it needs to go to $300 an ounce. For Lloyds-TSB to do the same, it needs to go to 220 BPC a share.

It all comes down to which you think is more likely in the next three – five years: $300 silver to achieve six times its best ever price, or Lloyds to claw its way back to one-third of its pre-2008 price. I know there are many who read this site who would say, “that’s easy – silver every time”. Fine. I have silver too, and will be happy with that. But a good investor is a hedged investor, and is also a realistic one. And, for now, I expect TPTB to look after their own interests and restore value to their directors’ shares far more quickly than they will enable silver investors to reap massive rewards.

FULL DISCLOSURE: Long LON:LLOY and LON:RBS and physical silver and physical gold. New positions in each of these are likely to be taken throughout 2012.