Tag Archives: stock bubble

Prelude To A 2008 Event: Paper Gold Manipulation Intensifies

The trading action in the paper gold markets of London and NY this week further convinces me that gold is being pushed down in price by the western Central Banks similar to the take-down in the paper price that occurred in 2008.  The motive is to prevent a soaring gold price from signalling to the markets that a big problem is percolating in the global economic and banking systems.

Once again, in the early morning the price of gold was slammed just after the London a.m. price Fix (3 a.m. EST) and again at the open of the Comex gold pit (8:20 a.m. EST) – click on image to enlarge:

This pattern has been persistent over the last two months.  It’s not about gold being “pinned” to the SDR, as Jim Rickards is now promoting.  And it’s not about some mystical gold peg to the yuan.  It’s about western Central Bank desperation to keep the dollar alive in order to defer the inevitable collapse of the record level of dollar-denominated debt and the associated derivatives.

It’s no coincidence that Rickards has floated this theory about the gold price and the SDR recently.  Rickards was rolled out several years ago to promote the idea that the SDR would be the next reserve currency. The Deep State knows the dollar’s life-span is limited. The U.S. dollar is 58% of the SDR, making the SDR the best replacement of the dollar which thereby enables the U.S. Deep State to maintain some semblance of global hegemony.

For the time being, gold is trading almost in perfect inverse correlation with the dollar. The dollar currently is rising vs. all fiat currencies. Therefore, of course it might look visually like gold and the yuan or gold and the yen are trading in tight correlation. But at the root it’s all about the dollar and the effort to prevent the dollar from collapsing.

As for the brewing collapse of the financial system, here’s an interesting chart comparing Deutsche Bank’s stock price with gold since the beginning for February. The idea here is that the Fed/ECB/BoE began to work on the gold price when it became obvious that the world’s most systemically dangerous bank was in a state of collapse:

Certainly the mining stocks are general “skeptical” of gold’s price action since April:

And has anyone checked gold lease rates lately? Currently the lease rate curve for gold and silver in London is inverted. Long-timers like me know that this means there’s an immediate and anticipated shortage of physical gold and silver available for delivery, where “delivery” means the metal is removed from the London vaults and shipped to the entitled buyer.  Both gold and silver are backwardated.  It took 11 iterations in the LBMA p.m. fix on Tuesday to balance out the heavy demand for physical gold from bidders. 11 iterations is rare occurrence. 5-6 iterations is rare. 1 or 2 is typical. Metal is tight in London.

If you are monitoring the Comex Hong Kong kilo bar vaults, you are aware that the movement in and out of the vaults there suggests that metal is also tight in Hong Kong, which means it is likely tight in Shanghai.

The point here is that the paper price behavior of gold right now is not what it seems.  I’d be more worried about the motives behind the take-down of the gold price using derivatives than I would about where the price of gold will be in 3-6 months.  I’ve always said that the occurrence of events triggering the price of gold to soar  will make life unpleasant for everyone.

What’s Going On With Gold?

Several of us who stick our neck out in public with analytic opinions on the market have been thinking  that gold has reached a tradable bottom.  I’m sure many would say that view is flawed based on today’s action.  Let me preface my thoughts by saying that, over the last 17 years of daily active involvement in the precious metals sector, I don’t pull my hair out over intra-day or even intra-year volatility.  Measured from the beginning of 2002, gold is up 441% while the S&P 500 is up 158%.

The point here is that, given how easy it is to print up paper gold contracts and flood the market, the price of gold can do anything on any given day. If you want to own gold for the reasons to own gold, you have be play the long game. The mining stocks do not seem to care about the day-to-day vagaries of the gold price right now. You shouldn’t either.

The trading pattern in gold is somewhat similar to its trading pattern in the summer of 2008, right before the great financial crisis (de facto banking system collapse) was set in motion.   The price of gold was taken down from $1020 in mid-March to $700 by October, while the financial system was melting down. That set up gold’s record run to $1900 over the next three years.

It’s becoming obvious to anyone who chooses to not put their head in the sand or become intoxicated with the copious amounts of official propaganda, that the U.S. Government is technically bankrupt and the financial bubbles fomented by a decade of money printing, credit creation and near-zero interest rates are about to explode.  It’s not coincidental that gold was slammed ahead of Congressional testimony by Fed-head Jerome Powell, one of the primary propaganda-spinning hand-puppets.

Gold started rolling downhill after the London a.m. fix. Right after it. The cliff-dive occurred as the Comex floor was opening. This is a pure paper operation. It’s either the hedge funds or the banks piling into the short-side of the market by flooding the market with paper gold and hitting all bids in sight. The managed money category of trader segment in the COT report has been getting net short and more net short the last two weeks. Hedge funds could be shorting even more paper gold, trying to push it further downhill to book profits on their shorts. OR it could be the banks piling into the short side but hide this by booking the trades they report to the CME (daily o/i) and the CFTC (weekly COT) into the managed money trader account in the COT report.

The latter is entirely possible. JP Morgan was already caught once doing this in silver. If you don’t trust the Government to report the truth, why would you trust the banks to report the truth? After all, the banks ARE the Government.

Today’s action has nothing to do with the $/yuan to gold relationship or the $/yen to gold relationship. The dollar is higher and gold usually trades inversely to the dollar. Gold likely is being managed like this to help disguise the coming financial and economic bombs that are set to explode – just like in 2008.

We’re dealing with a system in which banks and other big corporations control the Government and there is no RULE OF LAW whatsoever. Think about what you would do if you completely lacked a moral compass and were in control of the system, to a large degree. You would do exactly what they are doing. And I’m not talking about just gold. It’s everything. They have used debt to put the squeeze on the population.

The Demise Of Tesla: We’ve Seen This Movie Before

Enron was a product of the late 1990’s dot.com / tech bubble.  Similar to Tesla’s “production tent,”  Enron would set entire floors of buildings to look like elaborate energy trading rooms.  The operations were nothing more than a fraudulent shell game, set-up for the benefit of Wall Street analysts and journalists.

Bear Stearns was a product of the mid-2000’s mortgage bubble.  It created catastrophically leveraged mortgage-backed securities hedge funds that would inevitably collapse.  The managers of these funds kept these funds alive by hiding positions from upper management and fraudulently over-marking the value of the underlying assets, which eventually proved worthless.

And now, Tesla’s path to demise seems quite similar to the recent implosion of Theranos.  Theranos was biotech company which collapsed after it was revealed that it had fraudulently promoted claims about its blood testing technology.   This story resonates in Tesla’s decision to skip a critical brake test in order to meet a superficial production goal last week.  Anyone who takes delivery and pays for a Tesla Model 3 is putting themselves and their families at risk.

While not widely reported, there has been a rapid exit of high level executives, including the chief engineer, who resigned the day after Elon Musk issued the command to skip the brake test.  After this story broke, one of my subscribers emailed me:  “I design and build (from my bare hands) electrical testing equipment for the automotive industry. Plants shutdown rather than let their stuff go out the door untested.”  Now we know why the chief engineer bolted from the Company.

The proprietor of the Adventures  In Capitalism blog published a comparison between Tesla and Theranos.  He focuses on the recent erratic behavior of the CEO and potentially lethal production decisions implemented:

The question is, who would want to invest new capital when Tesla is now admitting to knowingly selling cars without testing the brakes in order to hit some arbitrary one week production target? When a company admits that it will sacrifice vehicle quality and even risk killing its customers to win a twitter feud and start a short squeeze, regulators must step in. The question is; what else has Tesla done illegally to hit its targets? We know that Tesla long ago passed over the ethical threshold of selling faulty products that have killed people—what other allegations will soon come to light? Elon Musk demanded that Tesla stop testing brakes on June 26. Doug Field, chief engineer, resigned on June 27. Is this a coincidence? Of course not—Doug Field doesn’t want to be responsible for killing people…

You can read the rest of this here: Tesla Is The New Theranos

The only ingredient missing from the chain of events that precedes the complete collapse of Tesla is a table-pounding, frothing-at-the-mouth “buy” recommendation from CNBC’s Jim Cramer.

The Yield Curve Is The Economy’s Canary In A Coal Mine

The economy has hit a wall and is now sliding down it. I don’t care what bullish propaganda may or may not be bubbling up in the headlines from the financial media and Wall Street, the hard numbers I look at everyday show accelerating economic weakness. The fact that my view is contrary to mainstream consensus and political propaganda reinforces my conviction that my view about the economy is correct.

As an example of the ongoing underlying systemic decay and collapse conveyed by this week’s title, it was announced that General Electric would be removed from the Dow Jones Industrial Average index and replaced by Walgreen’s. GE was an original member of the index starting in 1896 and was a continuous member since  1907.

GE is an original equipment manufacturer and industrial product innovator. It’s products are used in broad array of applications at all levels of the economy globally.  It is considered a “GDP company.” GE was iconic of American innovation and economic dominance. Walgreen’s is a consumer products reseller that sells pharmaceuticals and junk. Emblematic of the entire system, GE has suffocated itself with poor management which guided the company into a cess-pool of financial leverage and hidden derivatives.

As expressed in past issues (the Short Seller’s Journal), I don’t put a lot of stock in the regional Fed economic surveys, which are heavily shaded by “hope” and “expectation” metrics that are used to inflate the overall index level. These are so-called “soft” data reports. But now even the “outlook” and “expectations” measurements are falling quickly (see last week’s Philly Fed report). The Trump “hope premium” that inflated the stock market starting in November 2016 has left the building.

Something wicked this way comes:  Notwithstanding mainstream media rationalizations to the contrary, a flattening of the yield curve always always always precedes a contraction in economic activity (aka “a recession”). Always. Don’t let anyone try to convince you otherwise. An “inverted” yield curve occurs when short term yields exceed long term yields. When the yield curve inverts, it means something wicked is going to hit the financial and economic system.

Prior to the financial crisis in 2008, the yield curve was inverted for short periods of time during 2007. The most simple explanation for why inversion occurs is that performance-driven capital flows from riskier investments into the the longer end of the Treasury curve, driving the yield on the long end below the short end. The expectation is that the Fed will be forced to cut short term rates drastically – thereby driving the short-end lower, which in turn pulls the entire yield curve lower (the yield curve “shifts” down). This gives investors in the long-end a better rate-of-return performance on their capital than holding short term Treasuries for safety. The Fed’s dilemma will be complicated by the fact that it does not have much room to cut rates in order to combat a deep recession.

Studies have shown that curve inversions precede a recession anywhere from 6 months to 2 years. I would argue that, stripping away the affects of inflation and data manipulation, real economic activity has been somewhat recessionary for several years. The massive intervention in the Treasury market by the Fed, ECB and Bank of Japan has muted the true price discovery mechanism of the Treasury curve. The curve has been barely upward sloping for quite some time relative to history.  This could indeed be history’s equivalent of an inverted curve. That being the case, if an inversion occurs despite the Fed’s attempts to prevent it, it means that whatever is going to hit the U.S. and global financial and economic system is going to be worse than what occurred in 2008.

A note on gold and silver: The massive take-down in the price of gold and silver, which is occurring primarily during the trading hours of the LBMA and the Comex – both of which are paper derivative markets – is quite similar to the take-down that occurred in the metals preceding the collapse of Bear and Lehman in 2008. It is imperative that the price of gold’s function as a warning signal is de-fused in order to keep the public wallowing in ignorance – just like in 2008.  But keep an eye on the stock prices of Deutsche Bank, Goldman and Morgan Stanley – as well as the Treasury yield curve…

Paul Craig Roberts: “How Long Can The Federal Reserve Stave Off the Inevitable?”

IRD Note: The average household is bloated with debt, housing prices have peaked, many public pensions are on the verge of collapse in spite of 9-years of rising stock, bond and alternative asset values. But all of this was built on a foundation of debt, fraud and corruption. Dr. Paul Craig Roberts asks, “does the Fed have another ‘rabbit’ to pull out its hat?…

When are America’s global corporations and Wall Street going to sit down with President Trump and explain to him that his trade war is not with China but with them? The biggest chunk of America’s trade deficit with China is the offshored production of America’s global corporations. When the corporations bring the products that they produce in China to the US consumer market, the products are classified as imports from China.

Six years ago when I was writing The Failure of Laissez Faire Capitalism, I concluded on the evidence that half of US imports from China consist of the offshored production of US corporations. Offshoring is a substantial benefit to US corporations because of much lower labor and compliance costs. Profits, executive bonuses, and shareholders’ capital gains receive a large boost from offshoring. The costs of these benefits for a few fall on the many—the former American employees who formerly had a middle class income and expectations for their children.

In my book, I cited evidence that during the first decade of the 21st century “the US lost 54,621 factories, and manufacturing employment fell by 5 million employees. Over the decade, the number of larger factories (those employing 1,000 or more employees) declined by 40 percent. US factories employing 500-1,000 workers declined by 44 percent; those employing between 250-500 workers declined by 37 percent, and those employing between 100-250 workers shrunk by 30 percent. These losses are net of new start-ups. Not all the losses are due to offshoring. Some are the result of business failures” (p. 100).

In other words, to put it in the most simple and clear terms, millions of Americans lost their middle class jobs not because China played unfairly, but because American corporations betrayed the American people and exported their jobs. “Making America great again” means dealing with these corporations, not with China. When Trump learns this, assuming anyone will tell him, will he back off China and take on the American global corporations?

The loss of middle class jobs has had a dire effect on the hopes and expectations of Americans, on the American economy, on the finances of cities and states and, thereby, on their ability to meet pension obligations and provide public services, and on the tax base for Social Security and Medicare, thus threatening these important elements of the American consensus. In short, the greedy corporate elite have benefitted themselves at enormous cost to the American people and to the economic and social stability of the United States.

The job loss from offshoring also has had a huge and dire impact on Federal Reserve policy. With the decline in income growth, the US economy stalled. The Federal Reserve under Alan Greenspan substituted an expansion in consumer credit for the missing growth in consumer income in order to maintain aggregate consumer demand. Instead of wage increases, Greenspan relied on an increase in consumer debt to fuel the economy.

The credit expansion and consequent rise in real estate prices, together with the deregulation of the banking system, especially the repeal of the Glass-Steagall Act, produced the real estate bubble and the fraud and mortgage-backed derivatives that gave us the 2007-08 financial crash.

The Federal Reserve responded to the crash not by bailing out consumer debt but by bailing out the debt of its only constituency—the big banks.

Click here to read the rest: Paul Craig Roberts/Fed

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”

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.

U.S. Labor Market Reports: Someone Is Lying

The propaganda laced with bold lies is enveloping the media. The JOLTS report (Job Openings and Labor Turnover)  released today alleges that the number of job openings in April hit a record.   Of course, the April number was based on large revisions to previous data.  The number reported is also “seasonally adjusted” and predicated on statistical inferences.   In fact, 6.7 million allegedly vacant jobs is not only an all-time high but it also exceeds the number of “unemployed” in the Government’s monthly employment “report.”

How do we know both the reported job vacancies and unemployed are an outright fabrication?  Because wages would be soaring.  It’s simple supply/demand economics.  According to the Government, the demand for employees far exceeds the supply of workers.  But if this were case, the price of workers would be rising quickly.  It’s not.

Last Friday the Government reported Friday morning that the economy added 223,000 jobs, exceeding the Wall St. estimate of 190k. I go from general indifference to outright disgust with the payroll report. But Friday’s report was jaw-dropping horrification. Early Monday before the report hit the tape, Trump – who was briefed on the numbers Thursday evening – tweeted that he was “looking forward to seeing the employment numbers at 8:30 a.m.” I assumed the day before that the report would be rigged, but that confirmed it.

Here’s the problem with the 3.8% narrative: a “tight” labor market at theoretic “full employment is not confirmed by the “price of labor” – i.e. wages.

A 4% unemployment rate is considered “full employment.” The alleged unemployment rate has been running at 4% or lower for several months. But this story-line is not confirmed by wage growth. If the economy were at full employment accompanied by a “tight labor market,” wages should be soaring. Not only is wage growth dropping toward zero, it’s lower than the average wage growth shown in the chart going back to 1998.

The numbers and narrative as presented by the Government are simply not credible. The BLS statisticians removed another 170k from the labor force. The number of working age people not counted as part of the labor rose to 95.92 million – an all-time high. The labor force participation rate is 62.7%. Outside of Sept 2015-November 2015, this is the lowest level for the labor force participation rate since February 1978. Back then most families had one wage-earner per household.

Additionally, there are 102 total working age people who are either unemployed (6.1 million) or “not in labor force” (95.9 million). That’s 31.3% of the total U.S. population (Census Bureau: 2017 U.S. population 325.7 million). Of the 155 million people reported to be employed, 27 million are part-time. This means 39.2% of the total U.S. population works full-time, assuming that number is remotely accurate. Good luck to the Government keeping the Social Security Trust funded…

As for the most glaringly fraudulent aspect of the report, the BLS reports that “retail trade” was the 2nd largest producer of jobs in May. How is that heavenly possible? Retail sales are sagging and serial bankruptcies in brick/mortar retailing are dumping retail labor onto the market. There are other glaring inconsistencies with economic reality on Main Street. One number, however, that might be realistic: Health care/social assistance is credited with providing 31.7k new jobs. That is possible because the category is primarily Government jobs.

One last point. The birth/death model – which is reported before seasonal adjustments – is credited with throwing in 215,000 jobs into the total pool, which is then statistically “adjusted.” The BLS statistical sausage grinder spit out 223k jobs, of which the Birth/Death model contributed the majority on a non-adjusted basis. It’s just not a credible statistic. As we know, the Govt uses the birth/death “model” as a “plug” to create jobs that exist only on paper.

The chart above is the employment-population ratio. It shows the number of people “employed” as a ratio of the total working-age population. Prior to the 2008 financial crisis, the current employment-population ratio is the lowest going back to 1985. The ratio appears currently to be peaking. As it turns out, the four previous peaks in this ratio were followed by an economic/financial crisis and a severe stock market sell-off. My guess is that you will not see this graphic presented on CNBC, Fox Business, Bloomberg or any of the other mainstream financial media outlets.

Economic Collapse, Overvalued Stocks And The Stealth Bull Market In Gold

The narrative that the economy continues to improve is a myth, if not intentional mendacious propaganda. The economy can’t possibly improve with the average household living from paycheck to paycheck while trying to service hopeless levels of debt. In fact, the economy will continue to deteriorate from the perspective of every household below the top 1% in terms of income and wealth. The average price of gasoline has risen close to 50% over the last year (it cost me $48 to fill my tank today vs about $32 a year ago). For most households, the tax cut “windfall” will be largely absorbed by the increasing cost to fill the gas tank, which is going to continue rising. The highly promoted economic boost from the tax cuts will, instead, end up as a transfer payment to oil companies.

The rising cost of gasoline will offset, if not more than offset, the tax benefit for the average household from the Trump tax cut. But rising fuel costs will affect the cost structure of the entire economy. Furthermore, unless businesses can successfully pass-thru higher costs connected to high the er fuel costs, corporate earnings will take an unexpected hit. Rising energy costs will hit AMZN especially hard, as 25% of its cost structure is the cost of fulfillment (it’s probably higher because GAAP accounting enables AMZN to bury some of the cost in the inventory account, which then becomes part of “cost of sales”).

Gold is holding up well vs. the dollar. The dollar is at its highest since mid-November and the price of gold is trading 2% higher than it was at in November. Also, don’t overlook that the Fed began its snail-paced interest rate hike cycle at the end of 2015. Gold hit $1030 when the Fed began to tighten monetary policy. I thought gold was supposed to trade inversely with interest rates (note sarcasm). Gold is up nearly 30% since the Fed began nudging rates higher. Despite that it might currently “feel” like the price of gold is going nowhere, beneath the surface gold (and silver) have been staging a very powerful bull market pattern.

Kerry Lutz invited me onto his Financial Survival Network Podcast to discuss these issues and more. We have a good time catching up on a diverse number of topics – Click on the link below to listen or download:

Visit these links to learn more about the Investment Research Dynamic’s Mining Stock Journal and Short Seller’s Journal.

Mining Stocks Are Historically Undervalued

The mining stocks are more undervalued relative to the S&P 500 than at any time since 2005:

The mining stocks, especially the juniors, are more undervalued relative to the price of gold than at anytime in the last 18 years except late 2000 and December 2015. The poor sentiment and the constant price-capping of the sector by official entities has destroyed investor sentiment toward the sector. But the good news is that there are some incredible to be found right now. One of the stocks I recommended in my Mining Stock Journal is up 35% since May 17th, when I recommended purchasing it.

Bill Powers of MiningStockEducation.com invited me on to his insightful podcast show to discuss, among other topics, the precious metals sector and some specific mining stock ideas:

I truly believe that investing in certain stocks right now is the equivalent of buying into the internet stocks that survived the Dot.Com bubble. You can learn more about the Mining Stock Journal by following this link –   Mining Stock Journal information.