Precious Metals Mayhem; Gold Down $100; Silver Slammed

There are plenty of theories on what took place in precious metals markets over the past few days, but the best possible explanations really don't hold up to closer scrutiny.

Some say that there were margin calls in stocks and that traders trundled out of gold and silver, though that would not explain why the biggest hits were today, unless there were some overnight desperation calls.

Others suggest that this is all a coup by central banks in anticipation of a major monetary event, such as a Greek default or a major Euro-zone banking collapse, or possibly even the shutdown of the US government, which, if our nitwit congress-people have it in their power (and they do) may just occur as early as October 1 (nice that it falls on a weekend, too).

That maybe makes more sense, as anyone with half an interest in current geopolitics knows the central banks are working in a coordinated fashion these days, knowing that the time left for successful fiat money may be measured in days or months, no longer in years. With the Fed turning 100 in 2013, that would seem a fitting date to implode the entire global ponzi fractional reserve scheme, smack dab in the first year of a new president's term.

Of course, there is still the famous short silver position of the fabled Blythe Masters of JP Morgan, which could explain quite a bit, especially in terms of the solvency of that fine financial institution, in particular.

Whatever the case, haters of real money are having a field day, supposedly impressed that gold has fallen back to levels last seen at... hmm, the beginning of August (yes, less than two months ago) and silver is currently where it was at the start of 2011. These short-sighted individuals should bear in mind that all of the major indices of US stocks are BELOW where they began the year.

The public lovers and hoarders of silver and gold have been making "back up the truck" references all day long, seeing this latest price movement as either a liquidity or solvency event and are prepared to scale in buying at these levels while hoping the price foes even lower. With them, there is overall agreement that whatever is causing the price of the precious metals to shudder over the past 48 hours has more to do with the sustainability of current political and monetary factions rather then the intrinsic values of two metals which have stood the test of time as currencies for the past 5000 years.

Whatever the cause, it should be seen as a buying opportunity, with caution to purchase only physical metal, not ETFs or mining stocks, and to scale in according to your risk perspective. With the weekend on hand, prices should firm up in a few short hours, and the metals are currently well off the lows of the day, when gold was down my more than $100 briefly and silver had printed - for a short time - at a $29-and-change handle.

That was where all the action was today. Stocks were essentially flat, which is something of a surprise, following a day-and-a-half of vicious selling pressure.

A good idea would be to head to your local precious metal outpost and make the best deal you can on gold or silver, bars or coins, take your pick, because there is going to be a break between the paper prices of the EFTs and the physical market, which is splintered amongst thousands of coin and bullion dealers scattered around the globe. The CFTC has done nothing to protect PM investors from raids like these, allowing big outfits (like HSBC, JPM and central banks) to run naked shorts in violation of position limits without so much as a quiet "no, no." And, when the fiat currency regime ends, as have all paper currencies backed by nothing but "trust" which has now been broken a thousand times over, gold and silver will re-emerge as "real" money.

Precious metals prices may go even lower in a deflationary environment, but, as the central banks engage in more easing, money printing and currency debasement, gold and silver will take on their own lives as legitimate currencies and soar in value. Any way you look at it, this is a godsend for anyone underinvested in precious metals, because, unlike stocks, currencies or bonds, they are not debt-based instruments and there is no counter-party risk.

God Bless Ron Paul!

Happy Friday!

Dow 10,771.48, +37.65 (0.35%)
NASDAQ 2,483.23, +27.56 (1.12%)
S&P 500 1,136.43, +6.87 (0.61%)
NYSE Composite 6,770.73, +44.11 (0.66%)
NASDAQ Volume 1,987,216,125.00
NYSE Volume 5,639,933,500
Combined NYSE & NASDAQ Advance - Decline: 4195-2340
Combined NYSE & NASDAQ New highs - New lows: 11-477
WTI crude oil: 79.85, -0.66
Gold: 1655.00, -81.50
Silver: 31.15, -4.69

Market Crash Alert... Oops, Too Late, Dow Drops 391 Points

Editor's note: Switching over to first person singular tense for today, as it seems to work when I'm happy and the market is not. Some may be confused as to why I'd be happy over a market crash. That will be explained below.

The Markets

Today was another one of those doozies that come along... well, about once a week these days and I really wanted to issue a crash alert yesterday after the close, but didn't, even though I was alarmed over the number of new lows in relation to new highs. Anybody who reads this blog on a semi-regular basis (that's you, Dan K.) would know that the new lows - new highs is my favorite - and highly reliable - sentiment and direction indicator and it was flashing red at the end of the day on Wednesday.

Sure enough, Thursday turned into an all-out rout for equities on significantly higher volume, to say nothing of what happened to gold and silver (well, you can't have everything). Asian markets started the ball rolling downhill, with losses between 2 and 4%, then Europe kicked in with average losses of about 4.5% on the various exchanges.. The US declines were tempered by the usual late-day rally, in this case taking the Dow up about 130 points off the lows of the day, set at about 3:20 pm EDT.

The catalysts for the sell-off were various, but by no means, exclusive. Most market commentaries are blaming the Fed for their squeamish "Operation Twist" maneuver, which, upon further inspection, is a worse program than originally thought when we noticed this statement from yesterday's FOMC release:

To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.

The Fed is becoming the buyer of last resort for toxic and other MBS, the Wall Street concoctions which started the whole financial contagion back in 2007. We wish them well with their purchases, especially since housing is about to embark on another 10-15% price decline over the next year to two years. The conditions for residential real estate have not changed much materially in three years, and, despite some cheerleading headlines, prices continue to slide and will until the entire mess is wiped from the books of our favorite zombie banks, which, if the Fed and the banks have their ways, will be never.

The more telling stories came out of China and Europe. China's PMI (Purchasing Managers Index) for the month was 49.4, down from 49.9 in August. In Europe, the PMI dropped to its weakest level since July 2009 with a reading of 50.8. Anything under 50 indicates contraction, so the Chinese are already moderately contracting (read: recession), while Europe is right on the cusp. Their PMI's are at levels very similar to those in the US.

Speaking of the banks, the biggest of them, the TBTF types, took more body blows on the day. Our personal favorite, Bank of America (BAC) sold down to 6.04 at the close, making Warren Buffett's $5 billion investment look pretty stupid, along with the warrants to buy to up 750,000 shares for $7.14. Mr. Buffett used to be one of the wisest investors of all time, but after investing $5 billion in Goldman Sachs - also with similar underwater warrants - and now BAC, he seems to have lost the Midas touch. Of course, Mr. Buffett normally makes better investments than the ones he has been forced into by President Obama.

So, stocks are down big again, and closing in on bear market territory, and the future looks pretty grim. Those of you still putting your money into a retirement fund or IRA, having not heeded my advice from August of 2007 (you can check) when I advised to cash out, take the penalty hit and move on, are probably looking at a 20% loss over the past two months. That is more than the usual early withdrawal penalty, so, sure, you made some dough in 2009 and 2010, but you're about to be giving it back now.

There seems to be little left for stocks to do but go down, so long as the following conditions exist (see if you can find a positive catalyst in this list):

• US banks have been recapitalized since the collapse of 2008, but are still not lending and still are holding scads of bad loans both on and off their books, plus some have significant exposure to Europe - notably Morgan Stanley (MS) which is set to implode on the first whiff of a Greek default.
• Unemployment is officially at 9.2% and heading higher, though the real number is somewhere North of 17% and there doesn't seem to be much of a rush in Congress to pass comprehensive tax reform or jobs program.
• Congress, the President and the leaders of most of the nations of the world are blithering idiots, a fact made worse by the level of inbreeding among the elite class of society.
• Foreclosures are on the rise again, and the glut of homes on the market remains at or near record high levels.
• There is oversupply in just about everything, from gas and oil to houses to computers to automobiles. Prices are being or will be forced down in nearly every consumer class.
• Banks are still reluctant to lend to anyone except the biggest and most secure individuals and companies, leaving little room for start-ups and small businesses, the real drivers of job growth.
• Europe has more problems than one can imagine. The Germans are upset over having to guarantee such a large portion of the Greek bailout, now on its second time to the trough, with Italy, Spain and Portugal waiting in the wings.
• The federal government will continue to run deficits of over a trillion dollars per year for at least two more years.
• State and local governments are just now catching up to the private sector, laying off thousands of employees a month.
• The US poverty rate is at an all time high.
• The number of people receiving food stamps is at an all time high and still rising.
• Did I mention the people in congress and the president are nitwits?

All of this sounds pretty gloomy, like a coming recession and a deflationary depression on the front burner, but there is hope, and that hope explains why I cheer when stocks look like they're about to crash (when they actually do crash, I really start to party!). The reason for this is pretty obvious from my perspective. I've been pretty much out of stocks since August of 2007, and completely out since the fall of 2009. There's too much risk involved for my simple tastes.

I'm also an independent businessman who fights red tape and higher prices constantly in order to keep the doors open. It's a struggle, but, as I say, it beats working for a living.

When the deflation and depression become full-blown, there's a very real possibility that the banksters and politicians will be eating each other's lunches, and I suspect there is some of that going on already. The public backlash against the kleptocracy of fractional reserve banking and ridiculous levels of taxation (like the 15% Social Security tax ponzi scheme) will be ferocious and many of the people in power will be knocked from their perches.

In a deflationary environment, cash and specialized skills will become more valuable. So too, gold and silver, we hope. Oil will - must - go lower, and along with it, gas, meaning more money in everyone's pocket to spend on other things than just basic transportation. Prices and wages will return to more manageable levels and business will eventually boom. It's all relative. If you're making $50,000 a year and you get cut down to $30,000, if prices have declined by 40% in general, it's a wash.

So, yes, I firmly believe that bank failures and a stock market crash will eventually result in a stronger, better-balanced economy, after a lot of pain and suffering, of course, but nothing good has ever come from anything earned without commensurate sacrifice.

(Oh, and I almost forgot, minus signs are easier to type than plus signs - no shift key required.)

Dow 10,733.83, -391.01 (3.51%)
NASDAQ 2,455.67, -82.52 (3.25%)
S&P 500 1,129.56, -37.20 (3.19%)
NYSE Composite 6,726.62, -254.71 (3.65%)
NASDAQ Volume 2,928,526,750
NYSE Volume 7,893,035,000
Combined NYSE & NASDAQ Advance - Decline: 928-5812
Combined NYSE & NASDAQ New highs - New Lows: 10-1385 (yes, you're reading that right)
WTI crude oil: 80.51, -5.41 (yippie!)
Gold: 1737.70, -45.20
Silver: 35.85, -3.84 (buying opportunity)

Quick note on silver. I believe it will go lower, possibly materially lower, as no true support for anything exists in a deflationary environment, of which we are clearly entering. Silver could crash all the way back to the mid-20s, depending on the severity of the overall global crash, so I would advise scaling in at this bargain point, and using dollar cost averaging to keep your basis reasonable. Eventually, silver should top out at well over $100, possibly even more, especially of much of the world finds the wisdom to return to real money.

Stocks Sell Off after Bernanke, Fed Disappoint Wall Street

The Markets

The entire process of Central Bank watching and anticipation is just so ludicrous, especially when a central bank such as the Federal Reserve overtly telegraphs most of their moves well in advance.

The secrecy, the waiting and then the immediate market reaction is simply so annoying, one would almost hope that the process and the players be done away with, once and for all. That sentiment is, in fact, what would happen under a monetary system operating under a gold standard. There would be little need for the Federal Reserve and much less attention paid to their arcane machinations. However, since the United States has been officially off a gold standard since 1971 and under the thumb of the debt-crazed Fed since 1913, hope for change any time soon is slim, though under a monetary breakdown, much like the one begun in 2008 that hasn't yet been resolved, possibilities exist.

After tow days of meeting, the FOMC of the Federal Reserve finally came out today, shortly after 2:00 pm EDT, with another one of their insipid statements, outlining their plans to "save the world" from financial ruin. while some on Wall Street hoped for a resumption of some kind of quantitative easing, what the Fed delivered was not unexpected and something of a disappointment to the money-hoarding bankster types populating lower Manhattan.

In additions to keeping the federal funds rate at ZERO, the Fed announced plans to sell $400 billion of its shorter-term Treasuries to buy longer-term Treasuries through June 2012 in a plan based on a failed 1960's plan known as "Operation Twist," the effect of which will be to bring down longer-dated interest rates. If successful, the program will flatten the yield curve, with short-term rates already well below historical norms, and longer term rates down, but with more room to decline. The economic effect ought to be limited or nearly invisible, which is what sent the Wall Street bears into selling mode after the announcement.

Stocks had hovered around the flat line in anticipation of the announcement and sold off sharply on strong volume afterwards and into the close. All of the major indices finished at or near their lows of the day all but wiping out the gains from last week's phantom, options-induced rally.

Stocks continue to be a very unsound and unsafe choice for investors.

The bond market reaction was swift and decisive, with two-and-three-year bill yields rising and longer-dated bonds, the 10-and-30-year maturities collapsing. The 10-year closed out the day with a yield of 1.85% and the 30-year at 3.01%.

Dow 11,124.84, -283.82 (2.49%)
NASDAQ 2,538.19, -52.05 (2.01%)
S&P 500 1,166.76, -35.33 (2.94%)
NYSE Composite 6,981.33, -236.19 (3.27%)
NASDAQ Volume 2,180,005,500
NYSE Volume 5,446,355,500
Combined NYSE & NASDAQ Advance - Decline: 1135-5427
Combined NYSE & NASDAQ New highs - New lows: 26-562 (OUCH!)
WTI crude oil: 84.76, -2.16
Gold: 1782.10, -22.70
Silver: 39.69, -0.05


A couple of items caught our attention today. One was an excellent summary of decades of manipulation in the price of gold by Chris Powell, Secretary/Treasurer, Gold Anti-Trust Action Committee (GATA) at the 18th CLSA Investors' Forum, Grand Hyatt Hotel in Hong Kong.

For pure emotion and unbridled rage that captures the pent-up feelings of millions of middle and lower-class Americans, nothing beats the Best of walstreetpro2 (greatest f---ing hits) - 3 of 3 Warning: the video cntains great amounts of vulgarity, adult language, truth about the US economy and the destruction of many consumer goods. All in all, a classic.

The Rise and Fall of US Stocks All in One Day; Making a Budget and Sticking to It

The Markets

Stocks did an about-face midday on Tuesday, shaving away all of the morning gains as the afternoon wore on and word from Europe was mixed. The Dow Jones Industrials and S&P 500 each made a run at the lower end of their 50-day moving averages, hit resistance and failed, badly.

All of the averages made suspicious-looking early moves between 10 and 11 am EDT, hovered near the highs, made new highs around 2:00 pm and then fell remarkably into the close, with not even a hint of a closing bounce.

From a technical point of view, meeting resistance at the 50-day MA makes perfect sense and the indices will likely take another run at it in coming days, though it seems a hurdle too high to surpass, considering all of the significant headwinds facing companies (lowered earnings forecasts) and nations, especially those in the Eurozone - Greece, Italy, Portugal, Ireland - to say nothing about the current poor economic conditions in the USA.

Stocks have been mired in a basically directionless trading range for the better part of two months and that's making people even more nervous and keeping significant amounts of money out of stocks and into treasuries, corporate paper, cash and equivalents, gold and other tangible assets. The fear surrounding a default by Greece and the associated fallout to other European countries and banks has the market in a condition of near paralysis.

Until the sovereign debt issues are resolved one way or another, stocks will be unlikely to advance as investors are simply too afraid to stake out new, large positions.

On the data front, housing starts fell to a three-month low, from 601,000 annualized in July to 571,000 in August. With such a glut of cheap foreclosures and bank REO property on the market, in addition to the nearly 300,000 residential homes held by Fannie Mae, hope for a recovery by the end of this year are fading fast. With the onset of colder weather and the usual seasonal downturn, one could easily suggest that housing will dive even lower or bounce around the bottom until Spring of 2012 at the earliest. Of course, such numbers didn't faze Wall Street in the least. Optimists pointed out that building permits rose from 601K in July to 620K in August, though it's only a 3% move, barely more than a rounding error.

So, with Europe still a basket case and the US close behind, the markets are stuck in neutral, awaiting some kind of announcement from the FOMC, which began a two-day meeting today with a rate announcement due out tomorrow around 2:15 pm. The wording of the FOMC statement is unlikely to change dramatically, though many on the street believe the Fed will either outline some new policy such as "operation twist" in which they purchase longer-dated securities in order to drive long rates lower, or announce another round of quantitative easing, which would be dubbed QE3, though that concept, having already failed to goose the economy twice in the past two years, is unlikely to gather much traction within the Fed circle.

All should be expecting something from the Fed, even though many believe that they have exhausted nearly all of their policy tools.

Dow 11,408.66, +7.65 (0.07%)
NASDAQ 2,590.24, -22.59 (0.86%)
S&P 500 1,202.09, -2.00 (0.17%)
NYSE Composite 7,217.11, -17.52 (0.24%)
NASDAQ Volume 1,942,335,500
NYSE Volume 4,250,461,500
Combined NYSE & NASDAQ Advance - Decline: 2261-4207
Combined NYSE & NASDAQ New highs - New lows: 85-189
WTI crude oil: 86.89, +1.19
Gold: 1804.80, +26.30
Silver: 39.74, +0.09

Idea: Making and Sticking to a Budget

We've all heard forever that making a budget for household and/or business expenses and income is a smart and necessary step toward financial freedom and fiscal responsibility, but, taking our lead from Washington, few people seem able to keep the process honest or reach desired outcomes. Our federal government is probably the worst example of budgeting known to man, as the process is riddled with partisan politics, fudged calculations, unrealistic expectations and projections and extraneous falderol like earmarks, off-balance sheet expenditures and unfunded liabilities like Social Security and Medicare.

Household budgets are a bit simpler to make though not quite as difficult to keep. The best approach is to go for a monthly outlook, as most of us have recurring expenses that serve as a baseline. Things like utility bills, phone and cable bills, car payments, mortgage payments (though some of us have eliminated those recently) and credit card expenses come due at some time or another during the month and have to be paid in a reasonably timely manner.

After that, items such as food, clothing, entertainment, (liquor and cigarettes if so inclined) and other variable expenses should be calculated out on a monthly basis as best as possible. That way, one can readily see where overspending or potential savings might occur. The regular bills, known in the business world as "fixed expenses" aren't going to change much, if at all, month to month, and one will find that over time, even variable expenses don't bounce around very much.

Once one has all the monthly expenses lined up, then it's time to match it against income (if one still has any) and see how it balances out. If you are one of the lucky few who have an extra $5,000-$2,000,000 on the income side of the ledger, you can stop reading right here. You don't need a budget; you need a financial advisor or a beach house.

If, however, you're like most people, you'll see where all that money goes, and when you stop crying, you might find a little bit left over. Anything more than 10-20% above your monthly regular expenses would be a great sign. If you find yourself a few hundred dollars short each month, then there's work to do.

Where most people get into trouble is in making exceptions, overspending (usually caused by not thinking and acting on emotion), and bogus projections, like "I'll get a raise soon," or the classic fail, "when I start receiving Social Security checks..." as wishful thinking almost never returns positive results.

Another trap is not counting the little things that add up to big headaches without one noticing. Things like that morning latte - and doughnut, bagel, croissant or McDonald's McBiscuit - the extra tip for the heavenly lunch waitress or waiter, tolls, parking fees, snacks, bottled water, the occasional needed home item, more expensive gas than calculated, all contribute to budget busting in all but the most frugal environments.

There are remedies for those items, such as keeping receipts for everything or a log book exclusively for "little" expenses, but the best way is to take your monthly expense total and add 10% to it, calling it the miscellaneous expense column. If you're judicious and cautious, you'll find yourself spending less than that 10%, but it's doubtful it will add up to very much. The key concept is that every dime and dollar counts, even those $200 binge nights out with the guys or gals.

In the end, we'd all like to earn more and save more, the goal eventually being filthy rich and not having to worry about money any more. Since that's an unlikely event for the vast majority, taking a little time each month to review and preview income and expenses gives one a clearer outlook on where one's been, where one's money is going and what can be done about it.

There are an assortment of online tools and sites which can provide some assistance. Here's a good place to start, with brief reviews of some of the best budgeting websites.

Stocks Down on Greece, Bank Issues

The Markets

There were just two simple reasons for stocks to start out the week as miserably as they did: banks and Greece.

Naturally, there's more to it than just that, though those two catalysts have been driving the markets - in one direction or the other - for about the past year-and-a-half. There was also the concept, disclosed here on Friday, that last week's five-day rally was based upon pure nothingness, much like our fiat American currency. Coming at the end of options expiration, the market action for the week was completely suspect, and today market participants were treated to the big winners squaring their books.

But fears of a Greek default (it will happen. It must, because Greece is broke.) and its effects on the banking community worldwide clearly pushed Eurpean stocks lower and so too with US indices. The Dow dove more than 250 points in the early going, taking the rest of the market down with it. Of course, there was the obligatory, short-covering, melt-up rally at 3:00 pm, which cut the day's losses roughly in half, but today will look like a picnic compared to what's on the event horizon in the not-so-distant future.

That's really it. There was no real substantive news of any kind, outside of President Obama droning on about taxing the rich in a morning speech. The markets continue to experience great stress, but if the banks in this country are feeling the pain, all one can say is that it couldn't happen to a more-deserving group.

In news you won't see covered in any depth by the mainstream media, Ron Paul took the California Republican Party straw poll by a landslide, winning 44.9% of the vote, and seven are arrested during third day of Wall Street protests.

The latter story was reported by Bloomberg, and, as much as we like the company founded by the current New York mayor, they're still a bit outside the establishment mainstream of the large TV network apparatus.

Dow 11,401.01, -108.08 (0.94%)
NASDAQ 2,612.83, -9.48 (0.36%)
S&P 500 1,204.09, -11.92 (0.98%)
NYSE Composite 7,234.63, -113.55 (1.55%)
NASDAQ Volume 1,900,534,375
NYSE Volume 4,224,766,500
Combined NYSE & NASDAQ Advance - Decline: 1497-5053
Combined NYSE & NASDAQ New highs - New lows: 47-185
WTI crude oil: 85.70, -2.26
Gold: 1778.50, -34.00
Silver: 39.65, -1.01