Tuesday October 7, 2014

Table of Contents

The Holter Report

Bill Holter

Silver Arbitrage?

October 7, 2014

 

Silver closed last week under $17 for the first time in 4 years.  Maybe we have in store another "event" like 2008, 2011 or 2013 where the "price" gets forced down which explodes demand to a point where shortages again show up?  I have written several times before how a shortage should never ever show up in any real market if prices crash because of "selling."  If real silver were in fact being sold then the market would be awash in silver and no shortage could exist.  ...The last 3 episodes there were severe shortages which is your proof that it was not in fact real metal being sold, only paper contracts representing metal, this logic is not arguable.   

 

I have written several times regarding the high and growing open interest in the COMEX silver contracts.  It is my belief the Chinese via proxy are the longs and will at some point call for delivery.  I was "reprimanded" by a very famous commodities trader telling me that the open interest was high only because of "spread trades."  Spread trades only amount to 23,000 contracts which if subtracted would still leave us with 150,000 contracts or more of silver, still historically high.  Something is just not right, the open interest in gold is near multi year lows while silver touched 6 year highs last week, "spreads" do not explain it.

 

I have also argued that both silver and gold have seen concentrated sales where 50% or more of global production is dumped within 24-36 hours which in a real market where real metal trades, could not ever happen.  Who could have this size of metal and who would sell in a fashion to destroy their own price even if they did?  The answers of course are no one, and no one.  I get it, hedge funds are momentum traders and pile on in whatever direction any commodity is moving but gold and silver have now had access trades open lower or unchanged in 106 out of the last 110 trading days.  This is a statistical impossibility.  So it is what it is, but what does it mean, and what has silver trading way below the cost of production now unleashed?

 

The U.S. produces about 33 million ounces of silver per year, the mint has already sold 34 million ounces through October 2nd.  Think about this for a moment, this is just mint sales alone.  The entire U.S. production has been eaten up by the sales of coins alone, what of industrial demand such as solar, technological and medical demand...which over time will only grow with each newly discovered use?  During just the first 2 days of October, the mint sold 1.65 million ounces, this action does not square at all with investors panicking and selling silver.  My guess is if the price continues to be hit on COMEX we will again see a 2 tier market where premiums are quite large (over paper prices) for the actual metal and the wait times for delivery again begins to expand with outright shortages existing.  I believe the question is going to arise "what really is the price of silver," is it the COMEX price or the price to actually procure real silver?  On the other side of the globe in Shanghai, silver stands now in full backwardation, this argues for scarcity rather than plentiful supply.  

 

COMEX may very well "price themselves out of the market" if they push their hand much further.  Think about it, what would $12 silver on the COMEX mean if real silver was trading at $18 or even $24 in Shanghai?  Would the December longs have any choice whatsoever but to arbitrage the price discrepancy?  Buy it on COMEX and ask for delivery ...then sell it in Shanghai and deliver the metal as is required by their law?  It is this situation which will eventually drain whatever inventory is left in the COMEX (and SLV) in my opinion.

 

I will leave you with a comment sent to me by a reader with a little of my own tweaking.  He said ..."I buy silver with fake money for 20% less fake money than they can mine it for. Will I win? Ask any child able to grasp the concept and they can answer that!"  Think about what he is saying here?  He is describing COMEX to a tee, they trade nonexistent silver back and forth maybe 100 times or more than is actually produced globally ...and THEY set the price.  What will happen when one day the premium to purchase real silver rises $2 or $3 while the COMEX contract drops $1 or more?  What will a 2 tier market do?  It certainly will not create confidence in paper pricing versus cash and carry.  The danger as I see it is COMEX may now be pushing their hand too hard and too far ...as the Shanghai exchange now exists as a potential check and balance to paper pricing.  If COMEX moves the price too far from where the cash price trades, they will effectively arbitrage themselves out of inventory, out business and out of confidence.  Time will tell. 

Andy Hoffman's Daily Thoughts

Andy Hoffman

Ramifications

October 6, 2014

 

Frankly, it's impossible to understate how ugly Friday's NFP report was once one looks past the fabricated, propagandized "headline" number. Recall, we all but guaranteed "higher than expected" job creation and a "lower than expected" unemployment rate; as this was the last NFP report before the mid-term elections. However, we qualified such "optimism" with the usual warning to beware of the internals - which as usual, couldn't be worse.

 

Apparently, not only are part-time and temp jobs now considered equivalent to full-time jobs ("temporary help services" was one of the economies' fastest-growing segments), but so are short-term subcontracting assignments. Moreover, three-quarters of jobs created in the fastest growing segment "professional and business services" - emanated from a subcategory titled, we kid you not, "administrative and waste services, primarily temp services." Thus, according to the BLS, temporary help services not only have their own indisputably part-time category; but additionally, a sub-category within a decidedly full-time segment. Throw in the fact that the next four job-producing categories were the four lowest paying - and most likely, part-time dominated - and you realize just what a sham the so-called jobs "recovery" is.

 

Not to mention since the 2008 crisis, all incremental U.S. jobs have been in the 55-69 age category - including 230,000 of September's supposed 238,000. Moreover, more jobs have been created by the phantom "birth-death model" over the past six years than total jobs created; and oh yeah, following September's average wage decline, real median household income sits at two-decade lows without even utilizing a real inflation rate. Furthermore, whilst 238,000 jobs were supposedly created in September, 315,000 people left the labor force - enabling an "Obama Administration low" unemployment rate of 5.9%, amidst a 36-year low Labor Participation rate. Frankly, even these numbers don't do justice to how weak America's labor market has become, which is why this David Stockman article is a MUST READ; and why the real unemployment rate is dangerously close to that of the Great Depression.

 

Sadly, this ugly reality is global with essentially all economies plunging and debts surging. Equity liquidity is drying up with the vast majority of stocks declining and interest rates plunging in expectation of "QE to Infinity." Frankly, if not for the U.S. PPT's maniacal support in partnership with an equally vicious gold Cartel, we'd probably already be amidst the "big one." However, there are "ramifications" of such blatant manipulations - which will only hasten the end game making it dramatically more catastrophic.

 

We've written of these topics for years; and frankly, history's largest Ponzi scheme has created way too many "deformations." That said, we can't be more resolute of the devastating inflation the "99%" suffers when FEAR drives investors to the "reserve currency" to the detriment of everything else. Yesterday's "dollar surge" was a perfect example; as amidst an objectively ugly NFP number, the "fear trade" was alive and well - except U.S. equities, of course. Oil prices plunged, currencies crashed, and interest rates declined - even in the States, despite the "better than expected" number. The Euro is about to plunge through 1.25, the Yen through 110 and the Ruble through 40. I mean, we are talking about some major global inflation; all in the last month, and all following the same world-destroying pattern we witnessed in 2008. Sure, the PPT goosed the "Dow Jones Propaganda Index" just enough to close it above the 17,000 "key round number" it has so blatantly defended all summer. However, such "tape painting" no longer has any correlation to real economic activity; and aside from the "1%" receiving free Federal reserve money, nearly no one has benefited.

  

 

 

Even the MSM has finally noted the giant "pink elephant" in the room; i.e., the massive "dollar surge" not only exports an enormous inflationary jolt, but will have a devastating effect on the historically indebted U.S. corporate sector, amidst a real economy for all intents and purposes, already in mired in recession. In other words, contrary to TPTB's goal of propagandizing a global recovery, their "island of lies" economic reporting has convinced what's left of the market that only the U.S. economy is improving, causing massive capital flight to the dollar. This will only make the near-dead U.S. economy that much more uncompetitive; thus, forcing the Fed to "ease up" on its hawkish talk (as if maintaining ZIRP for a "considerable period of time" is hawkish in the first place). This is why global fiat regimes are cannibalistic by nature, and why the "final currency war" is about to take a giant terrifying leap forward.

  

 

 

Yes, a supposedly "rip-roaring" NFP number. And yet, interest rates plunged all afternoon, leaving the benchmark 10-year Treasury yield at 2.44%, less than 15 basis points from its 52-week low. Meanwhile, in its rabid goal of breaking PMs' major support levels, the Cartel has gone hog-wild in its naked shorting activities - in recent weeks, failing to leave a single "key attack time" unutilized. Silver has been decidedly pushed below its 2013 lows, and gold is within $10/oz. of doing so. Of course, global PM demand is simultaneously exploding - as it did when the Cartel blatantly attacked paper prices during the 2008 crisis; demonstrating just how farcical said "price declines" have become and how close we actually are to the "next 2008" arriving. And as for PM production, you ain't seen nothing yet!

 

Again, I not only held 100% of my liquid net worth in junior mining stocks from 2002 through 2008, and a significant percentage from 2008 through mid-2011, but worked as an investor relations officer and/or consultant to dozens of junior miners from 2006 until 2011. I went to every mining conference, met with every Canadian investment bank, traveled the globe inspecting mines, and followed the trading and finances of countless dozens of companies. When I joined Miles Franklin in October 2011, the junior mining industry was already dead and buried - having been strangled by years of capital starvation caused by chronic price suppression, causing everyone from banks to engineers to geologists to run from the industry, kicking and screaming. Moreover, given the utter explosion of mining costs due to Central bank inspired inflation - as well as prohibitively complex permitting logistics and financing hurdles, I predicted that much of the industry would be bankrupt within two years. Well, here we are three years later, and all that remains of junior mining are unfunded company shells with next to no activity ongoing, and not a single major discovery since the perhaps never-to-be-developed Fruta del Norte discovery of 2006.

 

As for the majors, we correctly predicted massive reserve write-offs a year ago. But compared to what we saw then, 2014 could be significantly worse, particularly if silver ends the year anywhere near today's unsustainable price. We could not be more emphatic of an upcoming, massive consolidation phase, when miners like Barrick and Newmont are forced to merge to prevent bankruptcy. And as I learned first-hand as an oilfield service analyst during the great 1999 oil consolidation - following oil's brief plunge below $10/bbl. - the resulting industry paralysis will likely cause already crippled capital expenditure plans to all but disappear. Oil was 15x higher less than a decade later; and rest assured, the same may well occur in precious metals regardless of monetary factors. Yes, the situation has grown that dire, whilst global demand is exploding, worldwide inventories (think Shanghai silver) are rapidly dwindling; and oh yeah, global debt, money printing, and inflation are dramatically expanding.

 

And thus, it all comes back to "Economic Mother Nature" - whose laws cannot be usurped by Wall Street bankers, no matter how powerful their derivatives, high frequency algorithms, and "off balance sheet" accounting chicanery. And the more they continue this blatant act of "Cartel Suicide," the more rapidly and powerfully they will be overwhelmed by unforeseen "ramifications." Which is why there has NEVER been a better time to protect your portfolio with the only asset class proven to do so. And no, we're not speaking of Bitcoin - which as it plunges below $300, is loudly validating our conclusion that it is decidedly NOT money. Nope, we'll stick to gold and silver, which undoubtedly will be the "last man standing" when the "big one" inevitably hits.

 

 

 

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