Category Archives: Market Manipulation

With Sentiment In The Gutter, Will Gold Stage A Rally?

A week ago Friday, the metals got clocked hard. It was a drive-by “paper gold” shooting on the Comex which took place after most of the rest of the world had gone home for the weekend. On Monday, the Hulbert Gold Stock Newsletter Index fell to zero. On Tuesday it dropped to negative 2.7. The HGNSI is an index that measures newsletters which make trading recommendations on mining stocks. A negative reading means, overall, the newsletters are net short in terms of position recommendations. Zero and negative readings are typically highly correlated with bottoms.

Since I’ve been following the HGNSI (since 2005), it has been a remarkably accurate contrarian signal. However, it does not offer any information on the timing of a move higher. That, of course, is always the money question. What I can say, however, is that if you have cash to put to work in the sector now is a good time start slowly buying into your favorite ideas.

There’s a growing feeling among long-time gold investors like myself that precious metals will potentially stage a surprise move higher in the near future. Note how I do not define “near future.” This is because Central Bank intervention makes it next to impossible to forecast over the “near future.” It’s this way now with all markets, not just gold and silver.

My friend and colleague, Chris Marcus of Arcadia Economics, invited me onto his podcast to discuss the precious metals market, stock market, Deutsche Bank and the general economy:

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Visit these links to learn more about the Investment Research Dynamic’s  Mining Stock Journal and  Short Seller’s JournalThe mining stocks are historically cheap and percolating for a big move higher.  My subscribers and I are making a lot of money shorting and buying puts on homebuilders and I’ve updated my recommendations ahead of this week’s earnings reports from Lennar and KB Home.

Something Wicked Comes This Way…

Craig “Turd Ferguson” Hemke (TF Metals Report) invited me to discuss the possibility that global financial system, including and especially the U.S. financial system is heading into another black hole like 2008.   In this conversation we discuss the signs that are pointing in this direction.  (To download, right click and “save as”)

To learn more about the Short Seller’s/Mining Stock Journals, click on either link (note, subscribers to both Journals receive 50% off on the second Journal):

  SHORT SELLER’S JOURNAL    /    MINING STOCK JOURNAL

Greatest Stock Bubble In History

Anyone who can’t see a dangerous bubble should not be managing, analyzing or trading stocks. Even Hellen Keller could figure out what is going here:

It’s not easy shorting the market right now – for now – but there have been plenty of short-term opportunities to “scalp” stocks using short term puts. I cover both short term trading ideas and long term positioning ideas.  You can learn more  about this newsletter here:      Short Seller’s Journal information.

“SSJ  provides outstanding practical advice for translating a company’s bottom line fundamentals into $$’s. Whether you’re a buy and hold long term investor or short term trader (or both), you’ll find all kinds of helpful advice on portfolio management, asset allocation and short term/long term options strategies. Really can’t recommend SSJ enough! Thanks Dave for your great service!” – subscriber “John”

WTF Just Happened: Gold & Silver Drive-By Shooting Friday

After moving significantly higher on Wednesday and Thursday following the dovish monetary policy issued by both the Federal Reserve and the ECB, the precious metals were ambushed Friday morning by the Comex bank cartel.  Right before the Comex gold pit opened on Friday, thousands of gold and silver contract were dumped wholesale into the Comex Globex computer trading system.   The deluge continued for over an hour (click on image to enlarge):

The chart above is the July Comex paper silver. From 8-9 a.m. EST, 21,922 silver contract were dumped on the Comex. This represents 109.6 million ozs of silver – roughly 13% of the total amount of silver produced my silver mining annually. It also represents 40% of amount of physical silver allegedly held in Comex silver vaults as reported by the vault operators (primarily JP Morgan, HSBC and Brink’s). Friday was by far the largest volume day for the July contract going back to late April, when July became the “front-month” contract for silver.   The same dynamic occurred in gold on Friday.

In the latest episode of “WTF Just Happened?” we discuss how and why the precious metals were smashed on Friday, as the Comex banks printed $10’s of millions in profits covering their enormous short positions in paper gold and silver ((WTF Just Happened is a produced in association with Wall St. For Main Street – Eric Dubin may be reached at  Facebook.com/EricDubin):

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 I recommended Arizona Mining in May 2016 at  $1.26 to my Mining Stock Journal subscribers.  It was acquired today for $1.3 billion, or $4.65/share.  Visit these links to learn more about the Investment Research Dynamic’s Mining Stock Journal and Short Seller’s Journal.   

Was Gold Actually “Dumped” Friday?

Sifting through Twitter, I came across a curious assertion posited as a reply to a post on “unemployment” on Steph Pomboy’s twitter feed (@spomboy).  The tweeter asked, “have you noticed that gold is being dumped?”  But was gold “dumped?”  Perhaps the tweeter should have qualified the question with the adjective, “paper,” in front of the word “gold.”

I replied rhetorically with, “is actual physical gold being dumped or is it Comex is it paper gold?” Let’s have a look. (click image to enlarge)

The Comex is a futures contract trading venue. While the Comex vault operators issue daily vault reports which allege the presence of 100 oz gold bars in custody, we have no idea if all of the bars are sitting physically in the vaults or whether or not there are any sort of encumbrances attached to any of them. Very few holders of gold contracts ever take delivery and very little actual physical gold moves in or out of the Comex vaults on a weekly/monthly/quarterly basis.  In short, the Comex is a paper gold trading exchange.

On Friday, after the primary physical bar trading markets – India and China – were closed for the weekend, large quantities of paper gold futures were suddenly being dumped into the CME’s Globex computer trading system, about 5 minutes before the Comex gold pit opened for the day (8:20 a.m. EST).  You can see the action narrated in the chart above.  It’s not uncommon for the price of gold to be smashed using paper gold on the Friday after an FOMC meeting, especially in the summer months when trading operations are likely only at half-staff and the rest of the world is gone for the weekend.

Over a 60 minute period from 8 a.m. – 9 a.m. EST, approximately 90,300 contracts were sold, largely indiscriminately hitting every bid in sight.   This is the equivalent of 9.03 million ozs of gold.  There’s only one problem with this:   as of Friday’s warehouse report, Comex vaults were reporting total gold stock of 9.01 million ozs – only 507,453 of which were listed as “available to be delivered.”  In other words, in just one hour, the total amount of gold allegedly held in Comex vaults was “dumped” in the form a paper derivatives.  Worse, the amount “dumped” was 17.7x the number of gold ozs currently available to deliver.

For the entire day, Globex + floor volume, 495,364 contracts were “dumped.”  This is 49,536,640 ozs of Comex paper gold.  Again, I ask the tweeter who posited that comment on twitter, was gold really “dumped” on Friday?

For those who monitor the daily gold flow into India and China, I will bet any amount of money that both of those markets will be aggressively buying more than their usual daily amount of physical gold in order to take advantage of the lower price.   Funny that Trump would enable the Chinese to buy cheap physical gold when he’s engaged in a rapidly escalating trade war with China…

Retail Sales: Inflation Plus Extrapolation

The footnotes are the most interesting section of every financial and economic reports.  They also happens to be least studied section of these reports.  Those who prepare these reports rely on this fact.

The monthly headline retail sales is based to a large extent on estimates, guesswork, invalid assumptions and statistical magic.  Examine the line-item details in this retail sales report link. Note the numerous lines for the May “estimate” that contain “(*).” Then scroll down to the footnotes.

“(*)” indicates, per the footnotes, that “advance estimates are not available for this kind of business.” Footnote 3 further explains that “Advance estimates are based on early reports obtained from a small number of firms…”.   In other words, a significant percentage of the retail sales are based on guesswork and inference.

Scroll further down the retail sales report and Table 2 shows the summary table (Table 2) which presents the month to month percentage change comparison for the latest month’s report.  The data in first four lines in this table is the data used for the headline reports.

Everyone uses these numbers, most without any knowledge whatsoever about the degree to which the data “behind” the numbers is comprised of highly questionable guesswork and unsubstantiated, if not entirely problematic, statistical inference and  adjustment calculus.

Additionally,  there’s a section in the report that explains methodology for the guesswork.  “Advance estimates are computed using a link relative estimator.”  A “link relative estimator” is a polite descriptor that basically means, “we assume that the historical growth rates implied by our historical reports can be applied to growth rate we assume in  this month from the previous month.”  On top of all of that, the Census Bureau then applies its nefarious “seasonal adjustment” factors to the data.  Keep in mind that a significant portion of the data is pulled out their ass.

All of this methodology is explained in further detail in the tabs on the main Monthly Retail Trade page of the Census Bureau. The information spread out in this section substantiates every assertion I have put forth above. It requires sifting through the “how data are collected,” “definitions” and “FAQs.”  I’m probably one of the few analysts curious enough to subject myself to this brain damage.

By the Census Bureau’s own trumped up numbers, most of the “gain” in retail sales from April to May, if indeed a bona fide gain occurred, was from gasoline and clothing inflation.   The numbers in the report are expressed in nominal terms.  They are not adjusted for the effects of price inflation.  Removing the effect of price inflation would yield the change in “unit” volume of retail sales.  This would be the number of true interest.

Finally, the estimated change in retail sales is not consistent with the patterns in consumer credit.  Based on the Fed’s consumer credit report, the use of revolving credit (credit cards, checking overdraft accounts, etc) has been contracting.  With the savings rate at an all-time low, the only way that retail sales unit volume could possibly increase is through the use of credit.  Thus, while guesswork and inflation is driving today’s headline report, in all likelihood unit volume of sales declined.  This latter assertion is indeed supported by recent manufacturing, factor order, durable goods and wage growth data.

A Massive Bubble In Retail Stocks

Retail, especially the “concept” retailers, are going parabolic. It makes no sense given the declining rate of personal consumption, retail sales, etc. The kinkiest names like RH, RL and W are going up like the dot.com stocks went up in late 1999/early 2000. The move in these stocks reflects either mindless optimism or momentum-rampaging by hedge fund bots – or both. The hedge fund trading flow can turn on a dime and go the other way. I suspect this will happen and, as it does, squeeze even more mindless optimism out of the market.

The cost of gasoline has to be hammering disposable income for most households. On top of this is the rising cost of monthly debt service for the average household.  Non-essential consumerism is dying on a vine.

Fundamentally the retail sector is not recovering. If anything, the economic variables which support retail sales are deteriorating. I think some of the shares caught a bid on better than expected earnings derived from the one-time bump in GAAP non-cash income from the tax law changes reported by numerous companies in Q1. I just don’t see how it’s possible, given the negative wage, consumption, credit and retail sales reports that the sector has “recovered.”

In just the last eight trading days, XRT has outperformed both the Dow and S&P 500 by a significant margin. It has all indications of a blow-off top in process. You can see that, with industry fundamentals deteriorating, XRT’s current level now exceeds the top it hit at the end of January, which is when the stock market drop began. The RSI has run back into “overbought” status.

Some of the “kinkiest” retail concept stocks, like Lululemon (LULU), Five Below (FIVE) and Restoration Hardware (RH), soared after reporting the customary, well-orchestrated GAAP/non-GAAP earnings “beat.”  Of course, RH’s revenues declined year over year for the quarter it just reported.  But it used debt plus cash generated from reducing inventories to buyback $1 billion worth of shares in the last 12 months.  Yes, of course, insiders greedily sold shares into the buybacks. (Note: If insiders were working for shareholders other than themselves, companies would pay large, one-time special dividends to ALL shareholders rather than buyback shares to goose the stock price)

The retail stocks are setting up a great opportunity for bears like me to make a lot of money shorting the most egregiously overvalued shares in the sector.  Timing is always an issue.  But complacency has enveloped the stock market once again, as hedge funds have settled back to aggressively shorting volatility.

It won’t take much to tip the market over again.  Only this time around I expect the low-close of February 8th (2,581 on the SPX) to be exceeded to the downside by a considerable margin.

The above commentary was partially excerpted from the the latest issue of the Short Seller’s Journal.  It’s not easy shorting the market right now – for now – but there have been plenty of short-term opportunities to “scalp” stocks using short term puts. I cover both short term trading ideas and long term positioning ideas.  You can learn more  about this newsletter here:  Short Seller’s Journal information.

 

WTF Just Happened: President Trump, BLS & MSM Still Lying About The US Economy

The BLS (Bureau of Labor Statistics) released its “hey man, lots of jobs open” report last week.  The problem is that the credibility of the report is only as good as the credibility of the organization that prepares the report.  In this case, the BLS and Census Bureau, both of which are notorious for highly suspect data collection and data “adjustment” techniques (true story:  sometimes Census Bureau agents just make it up if they don’t have time to keep canvassing after lunch).  Our take is that most of the job listings spit out by the BLS sausage grinder are fictitious.

In addition to this, and interpreted by the media spin-meisters and Government propagandists as evidence that “Trump’s trade war is working” and “the economy is running full bore,” the trade deficit report for April showed a large percentage drop in the trade deficit.   Indeed, the trade deficit fell month to month the most since 2008. If you buy into the narrative that the economy is strong, you don’t want the trade deficit to decline in correlation with a similar decline in 2008. In truth, the trade deficit declined because imports fell more than exports rose. Imports are falling because personal consumption spending is now contracting per the latest GDP revision. It used to be, a long time ago, that the trade report was called the “U.S. International Trade in Goods and Services” report. Now it’s simply referenced as “the trade deficit report.”

Final, we believe that the best time to accumulate a winning investment is when no one else wants to hear about it. The U.S. investor sentiment toward the precious metals and mining stock sector is almost as bad as it was in late November 2015, which is when the 5-year bear cycle – which followed an 11-year bull cycle – came to an end. We explain why the next leg in the secular precious metals bull market is about to take off this week episode of, “WTF Just Happened?“:

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Visit these links to learn more about the Investment Research Dynamic’s Mining Stock Journal and Short Seller’s JournalThe mining stocks are historically cheap and percolating for a big move higher.  I recommended shorting Hovnanian at $2.88 in January  – it closed at $1.95 on Friday and has been as low as $1.70.

Consumer Spending Contraction: Two Charts That Horrify Keynesians

“While the decline in housing activity has been significant and will probably continue for a while longer, I think the concerns we used to hear about the possibility of a devastating collapse—one that might be big enough to cause a recession in the U.S. economy—have been largely allayed…” – Janet Yellen 1/22/07

The propaganda is always laid on the heaviest just ahead of The Fall.  The employment report showing sub-4%, with nearly 96 million working age people not considered part of the labor Force, is possibly the penultimate fabrication.

Consumer spending is more than 70% of the GDP.  A toxic consequence of the Fed’s money printing and near-zero interest rate policy over the last 10 years is the artificial inflation of economic activity fueled by indiscriminate credit creation.

But now the majority of American households, over 75% of which do not have enough cash in the bank to cover an emergency expense, have become over-bloated from gorging at the Fed’s debt trough.

As credit usage slows down or contracts, the economy will go off Bernank’s Cliff much sooner than Helicopter Ben’s 2020 forecast.

The chart above is the year-over-year percentage change in total consumer credit outstanding. Not only is the growth rate decelerating, credit card debt usage is beginning to contract. This the collective prose from the mainstream media is that households are paying down credit card debt with tax savings. But, again, this is a lie. For most households, the increase in the cost of gasoline more than offsets the $90/month the average taxpayer is saving in taxes.

The second chart shows that the growth rate in auto debt fell off Bernanke’s Cliff in early 2017. While the growth rate in the amount of auto debt has appeared to have stabilized – for now – there’s been  a decline in the underlying growth rate in unit sales. This is because the mix of vehicles sold has shifted toward more trucks, which carry a higher sticker price and thus require a bigger auto loan.  Larger loans per vehicle sold, less total units sold.

The Keynesian economic model – as it is applied in the current era to stimulate consumer spending – requires debt issuance to increase at an increasing rate. But as you can see, the rate of credit usage is decreasing. The affects are already reflected by a rapid slow-down in retail, auto and home sales. Most American households are saturated with debt.

The real fun begins as many of these households begin to default. In fact, the delinquency and default rate, in what is supposed to be a healthy economy, on subprime credit card loans and auto debt already exceeds the delinquency/default rate in 2008. Perhaps Bernanke’s Cliff is just around the next bend in the trail…

Another Blow-Off Top In Stocks?

And just like  that, the  VIX index crashes right back to where it was before the late-January 10% drop in the stock market – a reflection that the remaining stock market speculators and hedge fund bots have been completely cleansed of any fear impulse that hit daytrader keyboards in the first quarter of 2018:

Hedge funds went from insanely short VIX futures to long VIX futures after the market had dropped 10% and the VIX soared. They were slaughtered on their shorts, now they are getting bludgeoned on their long position. But guess what?  They went net short again about  four days ago.  Selling volatility again at the bottom of the volatility index.  Not a good omen for perma-bulls.

The Dow has recovered about 56% of the decline that occurred from January 26th to March 23rd. Correction over and on to higher highs? Possibly. The Russell 2000 broke out to all-time highs starting in mid-May. The Nasdaq hit an all-time high Tuesday. Everything appears to be heading higher…or is it?

The Dow is being driven primarily by Boeing (BA), Microsoft (MSFT), Caterpillar (CAT) and United Health. On Tuesday, I calculated by hand that the big move higher by AMZN was responsible for 43% of the performance in the S&P 500. If AMZN had just been flat that day, the SPX would have closed lower from Monday instead of up 8 pts. By all indicators, the move in the Russell is being driven by a short-squeeze. TSLA was up $28 – 9.6% – yesterday because Elon Musk whispered the phrase, “Model 3 production target,” into the ears of the romance-starved Tesla bulls. Also known as a “shot of short-squeeze Viagra.”

When the market was plunging earlier in the year, the hedge fund bots shifted from insanely long to recklessly short.  Now they are being squeezed.

The Italian debt and Latin American currency crises have not only not gone away but they are getting worse.  As long as the reports don’t hit the headlines, the problems do not exist for moronic daytraders and hedge fund computer program news spiders.

Economically in the U.S. the bold propaganda-laced, heavily “adjusted” Government-manufactured economic reports continue to diverge from the economic and financial reality on Main Street.  Housing, auto and retail sales are deteriorating now as the majority of U.S. households have found themselves stuffed like a French goose readied for foie gras production.

Of course, the smart money is not hanging around for Part Two of what’s to come.  The “smart money index” shows that professional money is leaving the stock market at a rate that has only been equaled in the last 20 years in 2000 and 2008…

There’s no telling how much longer this insanity can persist this time around.  But it brings to mind Hemingway’s description of how to bankrupt as conveyed in “The Sun Also Rises” – “Two ways: gradually then suddenly.”

By the way.  Keep an eye on gold. The majority of the market looking to the sky for stocks and down over the cliff for gold, we could get a surprise move higher in precious metals and mining stocks.