Tag Archives: stock bubble

Why Are The Banks Long Gold And Silver Futures?

“The banks are very net long gold and silver futures. To the extent that banks can peer at what’s going on behind the proverbial ‘curtain,’ they must see something that has inspired them to take long position in the precious metals.”

Gold is behaving the same way it was behaving in the months leading up to the 2008 financial crisis.  Emerging markets are melting down and transmitting a financial and economic virus that infect the entire world.  The coming financial collapse will be magnified by the enormous amount of visible and hidden debt, the worst perpetrator of which is the United States.

Elijah Johnson invited me onto his Silver Doctors podcast to discuss the bullish set-up for gold and silver, along with the underlying factors that will lead to problems which have motivated the banks to go long gold and silver:

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You can learn more about this newsletter here:  Short Seller’s Journal information and more about the Mining Stock Journal here: Mining Stock Journal information.

A Coming Flood Of Treasuries And An Epic Gold Rally?

“When it starts to happen, I think it could happen a lot more quickly than people realize.” The rest of the world is methodically “weaning” itself off its dependence on the U.S. dollar. Perhaps the latest EM collapse will accelerate this reset. At the same time, the U.S. Government is on track to issue a record amount of Treasury bonds to fund its rapidly expanding spending deficit. Who is going to buy these Treasuries? When the bid for Treasuries disappears, the dollar will begin to collapse, gold will soar. Demand will far exceed supply as the price rises and the paper gold shorts will be slaughtered.

My colleague Chris Marcus invited me on to his Miles Franklin podcast to discuss what appears to be an extreme version of the 2008 de facto financial system collapse and a likely “reset” of the global monetary system:

In the next issue of the Mining Stock Journal, I analyze the latest COT report and present the price-point at which hedge funds will start to cover their large short position.  I also update my favorite junior mining stock ideas and present my favorite shorter term trading plays. You can learn more about this here:   Mining Stock Journal information.

Elon Musk Turns U.S. Capital Markets Into A Complete Farce

“Nobody, when they’re looking at a privatization, dangles this way and does this sort of teasing dance of choreography. Somebody only does this when they are trying to distract us with a shiny new thing…There’s a lot of problems here. He can’t afford to build the new factory that he says he wants to build. This is a distracting strategy like attacking the press” – Jeffery Sonnenfeld, Yale School of Management on CNBC

Elon Musk has turned the U.S. capital markets into a complete farce. He’s made of mockery of the fact that the regulators no longer enforce rule of law. The idea that any financial institution on earth would fund the largest leveraged buyout in history at a level that values Tesla on par with Volkswagen – the world’s larges car manufacturer – is beyond absurd.

We should hope and pray that some truth-seeking entity will hold Musk accountable for what is likely a highly fraudulent claim. Or, then again, perhaps Musk took one of his flying automobiles and went to Mars on Monday to “secure funding” from his Martian financiers.

A careful dissection of Tesla’s latest 10-Q reveals a Company with negative working capital and an unmanageable level of debt and other fixed commitments headed for eventual insolvency.

Beyond ranting about the obvious here, I’m posting an insightful, if not poignant, comment from a friend and colleague:

I am pretty amazed/disgusted that we haven’t come to terms (as a society) with social media. It is in this grey area where leaders of Government and corporations can walk a tight rope of truth/fiction without any consequence or regard for the affect of the immorality and illegality.  Narcissistic psychopaths like Musk utilize cult of personality to harness the power of the hopelessly ignorant looking for a guru; looking for a reason to justify their worst impulses and implausible fantasies. From a social science standpoint: it is interesting. From a person of the society: it is mindblowingly frightening.

The Trading Action In Gold

There’s no question in my mind that the intervention in the gold market is similar to the intervention that occurred in 2008 ahead of the financial crisis. However, I believe that,
because of the massive physical off-take in the eastern hemisphere, the western Central
Banks and bullion banks will be unable to push the price gold down on the same scale as it
was taken down in 2008 from March to October. Currently, gold is 15% above the low it hit at the end of 2015. It’s 7% above the interim low it hit at the end of 2016.

As of last week, money managers (hedge funds primarily) held the biggest net-short position in futures and options in records going back to 2006. A measure of gold volatility is near the lowest since January.

My good friend and colleague, Chris Marcus, invited me onto his podcast show that he produces for Miles Franklin.  We discuss the gold market, the deterioration U.S. economy and the reasons I believe that the trading action in gold and silver is preceding another financial collapse similar to 2008 only worse:

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In the latest issue of the Mining Stock Journal, which was released this afternoon, I present data that suggests the current decline in the price of gold is beginning to bottom and is setting up for a big move in to the fall. Also discuss my view of the theory that China has pegged the price of gold to the yuan and I present a gold stock idea that has dropped price to a level that makes it “stupid cheap.” You can learn more about this newsletter here: Mining Stock Journal information

How Is Tesla Different From Enron?

Answer:  It’s not. The longer I observe the Elon Musk/TSLA show – and the more I research in-depth the Company’s business model and financials – the more I’m convinced that there’s a striking similarity between Enron and TSLA. The graphic below was sourced from @TeslaCharts on Twitter (with my edits):

By now, I’m sure many of you have seen the report from a Twitter sleuth who discovered a huge fenced-in, gated lot in Lathrop, California where literally thousands of Tesla Model 3’s were being “stored” (@IspyTsla). Recall that Musk had set producing 5,000 Model 3’s by the end of June (Q2) in a week as a holy grail goal. A report from an anonymous insider who works on the production line stated that Musk ordered skipping a critical brake test in order to meet the production goal. Sheer insanity.

A subscriber to my Short Seller’s Journal who designs and builds electrical testing equipment for the auto industry told me that automotive plants shutdown rather than let their stuff go out the door untested. He said it happens quite frequently.  Tesla’s key operational executives have been leaving the Company like survivors jumping off the Titanic.  The latest to leave is the head of sales. Now we know why.  Tesla has entered an irreversible death spiral.

This accounting of Tesla brought back instantly my memories of shorting Enron in early 2001. The stock had been a high-flier and ran up with the tech bubble. The Company had supposedly fused together energy management technology and a Wall Street-style trading floor operation that was supposed be a huge money-generator for the Company. I recall reading some reports that Enron was using off-balance financing and LLC gimmicks to manufacture profitability.

After going thru Enron’s 2000 10-K with a fine-tooth comb, I determined that Enron’s balance sheet was a ticking time-bomb and I shorted the stock. I rode my short from the $40’s to under $15. Obviously I covered to too soon. But little did I know that it would emerge after Enron hit the wall that it had erected a fake trading room at its Houston headquarters. Upper management would have employees man the desks and phones when Wall Street analysts or big investors visited. The entire operation was a scam.

But how is this any different from turning out operationally flawed cars and storing 1000’s of them in a vacant lot? An analyst from Needham & Co reported that, based on his checks, Model 3 refund requests are outpacing deposits and order cancellations are accelerating. A year ago the refund rate (vs orders) was 12%. The analyst believes the refund rate has doubled. I was wondering when the refund rate would begin to place additional stress on Tesla’s liquidity. I believe it is quite likely TSLA will need to admit before Thanksgiving that it has raise more capital. That’s when the real fun for shorts begins.

Enron was able to get away with the fraud it was perpetrating for several years because of the complicity of its auditor, Arthur Andersen. I believe a similar relationship exists between Tesla and Price Waterhouse. There are just too many areas in Telsa’s financials where GAAP accounting standards are pushed beyond the limit of the so-called “gray area.” The irregularities span the entire income statement and balance sheet – from revenue recognition to expense capitalization. The latter enables Tesla to hide current expenses and debt.

Tesla will report Q2 numbers on Wednesday, August 1st after the market closes. In my opinion, shorting TSLA or buying long-dated puts has become unavoidable. In my latest issue of the  Short Seller’s Journal, I share my ideas for using puts to make a bearish bet on Tesla or how to manage the risk of shorting the shares outright. At some point, it will become unavoidable for Tesla’s largest shareholders to liquidate their holdings. It’s a massive breach of fiduciary duty lawsuit waiting to happen.

Just like Enron was emblematic of the fraud and stock market mania that defined the tech bubble, Tesla is the poster-child for the entire U.S. economic and financial system. Like Enron and Tesla, the U.S. is defined by debt, fraud, corruption, greed, entitlement and a blatant disregard for humanity.

Many Americans Are Living In A Financial/Economic Nightmare

The following is guest post from a Mining Stock Journal subscriber who runs a family business in the northeast part of the country:

Our family has been in business here for over 100 years. Presently we run a collection of consumer-based businesses, including a hotel, restaurant and an apartment complex. We have very well run businesses with tight controls. All my top managers have been with the company for well over two decades.

Because of the nature of our businesses and related customer base, I have a first-hand, “front row view” of the economic condition of the average household. I can say with direct knowledge that the average American has entered an income and debt nightmare.

I’m writing you because the entire area where I live and work has finally hit a wall of debt. It’s gutted our customers, our businesses, and the entire economy in my area…Everybody including small and mid-size businesses use debt to maintain their daily existence.

It finally showed up in ALL of our business starting this spring…our customers are BROKE and not coming thru the doors. Everyone up here lives by increasing their credit card balance each month, except for the very few that have their entire life savings in overvalued stocks. Before I wrote this, I asked my managers about their friends, family, and our employees. All are broke, living paycheck to paycheck.

Even in the alt-media, there is plenty written about the consumer being tapped out, but few are mentioning small and mid size businesses. Most are in the EXACT shape as the general public – just the numbers are bigger.

The drug use…heroin/meth is OUT OF CONTROL, a huge percentage of people up here can only survive with State and Federal assistance.

Dave, I’m not a gloom and doom’er, but starting the spring of this year…something changed…it’s like a wall was hit. You can bet your ass this area of the county is a mirror image of what I see in my businesses and the surrounding communities. Something is close Dave, very close. I have never seen anything like it in my 60 years. We both know what’s coming, and it’s not good.

Sorry I don’t have positive news……but it’s the truth!!

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 the 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 generally “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. In fact, lease rates gold from 3 months to a year are negative.  Negative lease rates mean the Central Banks will pay bullion banks to lease gold and silver.  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…