If I’m right and this is the start of what happened starting in late Oct.2008, guys like Bron and [Jeffrey] Christian and Trader Dan are going to end up looking like the biggest assholes in the world. Although I think that trip is booked and the train has already left the station, no matter what the price of gold does. – comments from me to some long-time colleagues
Deutsche Bank management spent Tuesday and Wednesday trying to make the case that it had plenty of liquidity and a gameplan to address structural issues. They threw the hail Mary yesterday when they announced the possibility of using available “liquidity” to repurchase a few billion euros worth of senior bonds. I have quotes around “liquidity” because, as I outlined in my blog post about this yesterday, DB is technically insolvent.
What has unfolded this week at the zombie bank is almost exactly the path to collapse taken by Bear Stearns. In fact, just like he did with Bear Stearns when he issued a table-pouding, booyah screaming buy on Bear Stearns about two weeks before it collapsed, Jim Cramer was out earlier this week telling investors not to worry about Deutsche Bank and that, “the European banks have a plan. The government has a plan…This is not 2008, because they learned from 2008.”
Cramer has proved to be a remarkably accurate contrarian indicator on stocks just ahead of a collapse in price. DB stock has already partially collapsed since August, falling more than 50% since then.
If you want to dismiss my view, that’s fine. But ignoring the action in the credit default swaps is a big mistake. The CDS on DB’s subordinated debt have gone parabolic, jumping to a spread over Treasuries of well over 500 basis points today. Over the past week, the CDS spread on both the senior and subordinated debt of DB has gone parabolic. This is the clearest possible signal, other than the truth from upper management, that DB is on the ropes.
CDS investors are among the smartest in the market because they tend to be closest to the real inside information at banks. I know this because when I traded junk bonds which, prior to the proliferation of CDS, were the “smartest” eyes in the market, our desk was right next to the bank debt trading desk. The bank debt crew always had access to internal numbers on the companies they traded. We were very tight with the bank debt traders, if you know what I mean.
This leads me to silver. I’l be going on record tomorrow in a podcast with Silver Doctors that silver is the trade of the decade. Also, the LBMA silver fraud fix was the cartel’s last gasp effort to grab as much physical silver as cheaply as possible. That silver fix event was outright theft of silver from the sellers of physical silver on the LBMA that day.
I believe, just an educated guess, that the accumulation of silver was out the necessity to make deliveries under paper obligations – LBMA contracts, Comex futures, OTC derivatives. I believe the looming shortage in physical silver is worse than in physical gold and last summer was an omen of what’s coming.
The ratio of price appreciation in today’s trading for gold:silver is 95:1. A normalized GSR is 16 or lower. The GSR hit 32 when silver was approaching its top in 2011. My point here is that they are throwing the kitchen sink at silver right now to keep the price down as much as possible in order to limit the potential damage that is going to occur to the banking entities that are perilously short paper silver, while their counterparties are starting to pound on “the door” looking for deliveries.
We are likely transitioning into the third and final leg of the precious metals bull market. I believe that the smart money will eschew all fiat currencies and move their capital into the best possible contra-fiat currency asset: gold and silver. Today, for instance, the dollar is down on a day when typically the dollar is used as a flight to safety. Gold is up $60. The smart money will get the train wheels rolling and the retail crowd will pile on about 2/3 of the way through the ride, paying extraordinary premiums to get physical gold and silver in their hands.
All fiat currencies are backed by nothing but promises from Governments that are leveraged up to their eyeballs. Physical gold and silver do not have any counterparty risks as long as you do not buy them on margin and keep them in a custodial account. The margin risk is obvious, for most people the custodial risk is non-obvious but very real. Just ask the traders who owned physical silver in MF Global’s Comex warehouse account…
Dave, I wouldn’t be surprised if half of the JPM silver “horde” doesn’t exist and that they’ve screwed clients ala Morgan Stanley (the only mega investment bank to have been officially busted in the last 50+ years for not having customer precious metal in allocated and segregated accounts). Ted Butler et al. have this wrong too. It’s not clear how much fraud we’re talking about, but hey, we’re talking JPM. – a well known market analyst and blog host and silver market expert
Looks like Sovereign nations are coming under stress too.
This is a chart of CDS rates for the United Kingdom vd the U.S.
Our ability to print money without restraint must be buying us a bit of time compared to the Brits..
Wonder if it’s related to RBS, still part owned by the UK government? We’ve also got HSBC and Standard Chartered with China exposure, not to mention a big property bubble, oh and a big government spending deficit and shocking balance of trade deficit. Then of course TPTB would love to cripple the economy here prior to the referendum; don’t be surprised if a UK bank is sacrificed to allow Janet the excuse she needs to Begin the big print.
I had a lot of those same thoughts. Suspect also, that RBS and other British banks might have more exposure to European Banks like Credit Suisse and Deutsche Bank then their American counterparts, meaning a much more dramatic hit should those fold, with ripple effects through an economy smaller than that of the U.S., and less able to absorb the effects of it. Much lower tax revenues and all that..completely sink the British budget..though I don’t think America is immune to this either..
Nice link, Thanks!
I’ve bookmarked it for future reference.
Silberblatt v Morgan Stanley: MS kind of forgot to buy the physical but they did charge for storage.
Pure fraud and nobody went to jail. Our expectations on that should be low. Except if we do not cross a t or dot an i, we get dumped on.
Trader Dan has always been the biggest asshole in the world!
Not even close.
See my comment below.
Hi Dave thought this might interest you
It does interest me – thank you
As I have been saying for months now, the GSR will continue to expand. Silver bugs put their hands over their ears and don’t want to hear it (despite the fact things only get worse and worse relative to gold), but gold is the ‘goto’ hedge -not silver.
The Sherman Act is what brought us the 16:1 ratio everybody likes to cite. The Sherman Act was brought to us by the ‘easy money’ crowd of the time -the same kind of people who push for QE today.
Central banks around the world recognize gold as a reserve asset (not silver).
The Chinese, Russians, et al are all hoarding gold (not silver).
If you are a rich guy with millions to protect, how on earth would you even manage let’s say $10MM of silver? Seriously, how would you move it (let alone store)? This would require a team of people and several large trucks. I could easily put $10MM in the back of my Suburban all by myself in just a couple minutes (~400 pounds). Even if you have just $500k worth of silver that would not fit in a normal p/u truck.
If there is a reset, it’ll be in relation to gold. Silver will follow on its coattails, but lag.
I know my comments will draw lots of arrows, but it is the contrary play and I continue to be correct since the GSR is now approaching 80. Open your minds to the possibility that maybe gold is the smarter play.
O/T, but my guess is Iran who started the recent rise in bid for gold. Things started looking good again right after their sanctions were lifted and they were handed many billions to deploy. These are the guys who invented chess and they fully understand what a charlie foxtrot the markets have become.
Geez dude. Silver is poor man’s gold – it has been since before the Roman Empire. The brute force of movement into silver by the masses will take the GSR down below 16 again eventually. Hell the GSR was 23 when Nixon closed the gold window and went lower for awhile.
Silver is pulled out of the ground at a ratio of 8 or 9 ozs per oz of gold. BUT, 70% of all silver is used for industrial purposes. That was not the case historically. The argument can, in fact, be made that we could see a GSR even lower than 8, unless silver is specifically forbidden as a monetary metal when The RESET happens. I doubt that since silver was used as a monetary metal even before the Roman Empire set the ratio at 8:1.
The Sherman Act is completely irrelevant in the context of the history of the world.
Only time will tell who is more right. If silver does well so will gold and vice versa. It is only a matter of who will be more right I suppose.
One of my zings against silver (and you mentioned it yourself) is that silver is an industrial metal and industry totally sucks right now. In a flight to safety people prefer gold. If you are of modest means you buy a modest amount of the goto item, not a bunch of the ‘second best.’
Since you prefer silver b/c of its undervaluation in relation to gold, what is your opinion on Platinum? It is also topsy-turvy relative to gold. I would submit to you it is very much like silver in that it is primarily an industrial metal and less of a monetary metal than gold. However, it is a screaming buy using typical metrics. We are not living in typical times though.
Last thought…Did Jews escaping Europe sew silver into their clothing (I’m sure they had it)? Just say’n… People like us will be the jews of the next persecution. That is my guess anyway and I would prefer to have the ability to carry more of my wealth than silver will ever allow. I hope it never comes to that, but keeping ones options open is always wise.
Stay frosty my friend.
Migrating with metal is a different story. Of course you’re going to use gold for that purpose.
But most people will not be migrating out of the U.S. Silver is better value relative gold AND – this is
important – a lot more fungible, which means its actually more useful as currency for everyday goods
I agree silver is more fungible. I own some myself, but not a lot. Last year I was able to buy 1/4 eagles at less than 7% over spot and they are also pretty darned fungible and a hell of a lot more easy to carry than rolls of 90%. The guy who I buy firewood from brings me two cords for each one of these (this was in the fall). He’s told me my price will never go up. 😉 Then again he is an older guy like me.
I feel wealth compactness will take on a whole new dimension of value as we enter the shit storm.
I have no plans on leaving the US. I speak no other languages and there are few places better who would have me. The whole world is f-cked-up. Unless you have SERIOUS wealth Switzerland won’t take you in. However, a moving target is more difficult to hit if it comes down to being tagged a political malcontent and one of Hillary’s summer fun camps is in your future. Two monster boxes of AGE’s fit nicely under my truck seats. It would take 80 times that space for ASE’s.
Interesting to read Mike & Dave’s back-and-forth regarding the GSR…I’m heavy gold and light on silver, my own personal ratio in absolute dollars is very unbalanced in favor of gold. Keep having this gnawing feeling I should convert some of the gold into silver, but also can’t seem to get my ass of the fence on this decision.
I might guess you had the same gnawing feeling when the GSR crossed 50. Lots of very smart people including James Turk were imploring people to buy silver at much lower ratios. We are living in truly remarkable and unusual times so the past may not be prologue to the future is my greater point.
I saw an article on ZH today which showed people in London lined up to buy…..GOLD.
Maybe I am full of shit. Who knows. These are just the opinions I have using my life experiences and knowledge of human nature. Things are starting to spin out of control. Do not venture far from home if you can avoid it.
Dave: I don’t know where you get a GSR of 95:1. It is 79:1 at the moment (21.15 UTC/GMT). I have been pointing out to people like Bill Holter and Bix Weir that the GSR is far more important to the manipulation of the PoS because the distortion that has been caused to the supply of silver because of the insane, criminal and totally economically RECKLESS GSR (which is 16:1 in nature i.e. silver ounces to gold ounces occurring naturally in the ground. This is, and always was, the criminal elephant in the room because it never, ever should have been allowed to reached these levels because silver is actually a precious metal IN DANGER of extinction and it has so many uses of benefit to HUmankind. This is why it is an off-the-scale criminal act and these players should all be immediately banned from trading silver. Why isn’t THAT happening? Oh, yes, ALL the regulatory organizations are corrupt, too.
In fact, it is probably far, far worse than the calumny that a GSR of 79:1! Bill Holter thinks the current natural GSR is around 10:1 as far as mining these 2 PMs goes! Just think about that for a minute. 10:1!!! At present that would mean the PoS would be $125.00 with gold at $1250 or so! Why isn’t THAT the GSR? Yet it is even worse than that because the above ground ‘supply’ of silver is a mere 1 billion ounces with an annual worldwide consumption (which actually means consumption for much of silver) of around 200 million ounces! Now are you beginning to get the picture? Having silver this ‘cheap’ is so utterly RECKLESS it can only be described as a criminal act by those who have enormous power and ‘influence’ nothing but contempt for HUmanity otherwise no sane person would have let this go on for as long as it has!
So add insane to that power and that influence. This is why I call it the ‘elephant in the room’ that no one addresses, no one really discusses intelligently, and therefore no one does anything to stop it from happening. It will only end with every available scrap of silver disappearing with no meaningful supply available to replace it – possibly for YEARS!!! That is the kind of insane world we live in and the insane antics of men and women buoyed up, pumped up and dangerous, and loose in society to prey upon the rest of HUmanity. That, again, is insanity!
All we do is pray that the markets will correct this gross distortion but when it does it will already be too late for the damaged wreaked by this insane people will be difficult to undo! And yet we all sit around and talk about how dreadful it all is! I include myself, by the way! That’s what we do, though. Sit around and talk about it.
Until someone with the ‘bottle’ to tackle them face to face starting with the travesty of the LBMA silver ‘fix’ or whatever they call it now, by dragging this organisation (and the 2 other entities responsible ‘maintaining’ it) into court to answer the charges levelled by all who have relied on this price ‘mechanism’ and who have lost capital, stock, profit and income because of it, they will not stop. I have direct experience of how they operate: parachuting people (usually men) into organisations at a high level on the ‘suggestion’ of one of their own already placed there at a high level: senior management or director level. They are conniving, nasty, secretive and cowardly people who act only for themselves and I have seen them nearly destroy an organisation for their own profit and gain that had existed for 75 years before they began to destroy it! Isn’t enough, enough? Please think about all that I have said and decide for yourself what needs to be done and how it can be achieved. Stop sitting on your backsides! Take action to redress this sadly one-sided balance.
Silver haters are trying to rationalize their preference to gold.
I’m happy with my s/g ratio which is about 10 to 1 in terms of $$.
As the current ratio goes down, I will trade some silver for gold but
right now silver is the better buy.
The indians are buying silver like theres no tomorrow!
It isn’t “Trader Dan”, It’s “Traitor Dan”.
I have a feeling that he had some falling out with Sinclair and since then he has been in a pissing contest.
Because he was right about the metals direction maybe and saw Sinclair and his sycophants (psycho!) for the grandiose shills that they are?
Sounds pretty wise to me.
I am loving this website more every day! You are rapidly closing in on replacing ZeroHedge as my favorite insider, honest financial planning source. Thank you. Just some thoughts on silver…isn’t it leveraged over 100:1, paper vs. physical? What is going to happen to the price when people think they own it but in reality can’t get it delivered to them by the sellers?
Secondly, if you don’t think that the U.S. government is going to come after physical gold and silver owned by regular folks, you are sadly mistaken. They will do so, just like during the Great Depression, and under orders from FDR. They are tracking everything we do currently, and the Constitution is about as troublesome to them as a fly. It will be outlawed and you will be threatened with massive fines and imprisonment for not turning yours in. Keep your holdings on the QT. Trust no one.
Hey thanks for the feedback. I appreciate it. No one really knows the true degree of paper vs. physical in gold and silver. Everything is an educated guess and the cabal keeps the data as opaque as possible intentionally.
I’m not really interested the issue of whether or not the Govt will try to confiscate gold/silver. I think if they do anything, the most liekl course of action will be to outlaw the use of specie as a currency in this country. I’m fine if they want to go door to door to try and take everyone’s metal. Because most of also have a good cache of lead and some us will not be afraid to use it.
Good Lord, one good week in the metals and the pompous mania is in full gear already?
This article fails to mention just how right some folks have been the last few years who actually saw the massive downdraft in the metals BEFORE it happened while most of the more delusional cheerleaders and doomers just kept up with their stale, myopic bullish rants.
The author of this is a seething douchebag who probably was so wrong for so long that he/she was just chomping at the bit to proclaim how right they’ve been when they’ve probably been wrong for years.
Any obsessive moron can keep spewing the same bullish crap for years or a decade and they’ll eventuallybe right and take credit for it.
But what will they say when the price drops again like it did for years previous? Crickets or more bullish drooling about what the price is supposed to be in their fantasyland if it weren’t for all that darn manipulation/excuse.
edit: not the entire article, sorry. just the quote at the top by some misaligned ass-hat.
Is that you deep purple??
I thought you dried up and blew away……….darn