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The CFTC, CCP And Silver Manipulation: “Fox, Please Watch The Hen House”

No, not that CCP, though it may as well be. The “CCP” in reference Comex paper silver manipulation is the Central Counterparty sub-committee of the CFTC. The CCP is the creation of Russ Benham, Chris Marcus’ (Arcadia Economics) candidate for a Nobel Prize of some sort. The CCP was established to to provide reports and recommendations directly to the MRAC regarding current issues impacting clearinghouse risk management and governance. The MRAC is the CFTC’s “Market Risk Advisory Committee.”

Hmm…the CCP is a sub-committee established to provide market-risk advisory recommendations to the sub-committee of the CFTC that was established to provide market-risk advisories to the CFTC Commissioners. Sounds like duplicative, over-lapping functions intended as “cover you ass” bureaucracy set-up by a political animal who will be well-rewarded by Wall Street after serving as Wall Street’s fluffer on the CFTF for awhile .

Perhaps the part of this Orwellian or Randian web of propaganda, pomp and circumstance that is least impressive and most troubling is the fact that the co-chair of said “CCP” is Alicia Crighton, the COO of Prime Clearing Services in the U.S. for Goldman Sachs. This title may sound impressive but it’s Wall Street jargon to mean, “figure out the way to maximize profits for the bank from hedge funds.”

Recall that in 2008, Goldman Sachs was almost incinerated from the counterparty risk exposure it created for itself by stuffing AIG to the gills with sub-prime OTC derivatives. Shortly after Lehman collapsed, AIG was set to collapse next and drag Goldman Sachs along with it. But the taxpayers and the Federal Reserve injected several trillion dollars combined to keep AIG, Goldman Sachs and several other TBTF Wall Street banks solvent. At the very least the people at these firms and the executives in charge of these firms should have been required to dis-gorge their enormous bonuses that were funded by fees from the derivatives that ultimately caused the de-facto financial system collapse. Nope. Instead they collected hefty bonuses funded by the taxpayers.

As this relates to the silver market, the CCP was recently established by the “interim” chairman of the CFTC, Rostin Benham. The CCP will “harmonize, coordinate and enhance” the CFTC’s counterparty default risk oversight.  If you think I’m being sarcastic with the terminology, see yourself:  CCP Risk ManagementThis is Orwell-speak for advising the CFTC to look the other way while the Comex bank market-makers make an effort to escalate the degree to which they print gold and silver paper contracts in their effort to cap the price rise of gold and silver.

To be frank,  Ms. Crighton is is doing nothing more than prostituting herself to exert control over CFTC oversight activities for the sake of getting paid a lot more money from Goldman.  Make no mistake, her compensation from Goldman is tied to directly to her ability to ensure that Russ Benham follows the directives she exerts as handed down to her from her masters at Goldman.

Benham is a lawyer by training. But the more interesting part of his background reveals that he is a political beast, serving as “counsel” to Michigan Senator, Debbie Stabenow. He also worked at the New Jersey Office of the Attorney General. Note that there is no evidence of any experience whatsoever of professional financial markets experience. He was, apparently, inserted as the “interim” chair of the CFTC because he is the ideal Wall Street hand-puppet, as evidenced by his setting up the CCP. The CCP should be unmitigatingly be regarded as a “fox” put in charge of guarding the “hen house.”

This an important back-drop of information that will add depth to the information conveyed in this short podcast produced by my good friend and colleague, Chris Marcus:

To be sure, the manipulation of markets always fails, eventually. When the event that blows up the Comex occurs, it will be the end of the dollar’s reserve currency status and end of the United States as we know it. The prices of gold and silver will do a moon-shot that makes the recent parabolic moves in Bitcon and dogecoin seem like odd-lots. The net worth of those who own and hold physical gold and silver will be life-changing in scale, but it’s unclear if we’ll be able to enjoy it.

I’d rather be a free man in my grave, than living as a puppet or a slave – Jimmy Cliff

Fortuna Silver CEO On The Roxgold Acquistion

“On the geology side, I just believe that the market is failing to assign full value to the potential of the [Roxgold] properties.” Jorge Ganoza, Fortuna Silver Mines CEO

On April 23rd, $FSM and $ROXG announced a definitive agreement in which FSM will acquire all of Roxgold’s shares. Fortuna’s stock was mercilessly pummeled. The sell-off in FSM’s share price was extraordinarily irrational and is another example of the stock market’s inefficiency with respect to valuing precious metals mining stocks. But it has created an opportunity to earn profits in excess of the risk-adjusted rate of return expectations for a stock with Fortuna’s risk/return profile.

West Africa is one of the hottest gold mining and gold exploration jurisdictions in the world. After South Africa’s Witswaterand basin, West Africa’s Birimian Gold Province has the second largest gold endowment in the world.

I originally presented FSM to subscribers in the October 17, 2019 issue of my  Mining Stock Journal as a value play after I felt the stock was irrationally sold down to the low $3’s based on temporary technical factors. At the time I pounded the table on MSJ and bought a large position.  I think the current sell-off has presented investors with yet another “golden” opportunity to buy into a world class high-grade gold and silver producer.

Trevor Hall, Chris Marchese, Peter Spina and myself had a conversation via Zoom with Jorge Ganoza, Fortuna’s CEO, in which he explained his vision and rationale for expanding into West Africa with Roxgold and why FSM will help accelerate the process of “unlocking” the value in Roxgold’s assets:

Why Did The CFTC Help Suppress Silver Futures Prices?

Before the CFTC inevitably ignores the following inquiry from Chris Marcus et al, I would remind its Chairman and the CFTC attorneys that the CFTC and its agents are  public servants — their function is to serve the public.  The compensation paid to the CFTC’s Chairman and Commissioners,  and  to its entire staff,  is funded by the United States’ taxpayers.

From GATA by way of introduction to Chris Marcus asking for an explanation of the CFTC’s effort to help suppress the price of silver in the Comex futures market:

In an open letter to the acting chairman of the U.S. Commodity Futures Trading Commission, Rostin Behnam, Chris Marcus of Arcadia Economics asks for an explanation of a comment Behnam made on March 18 that seemed to applaud and implicate the commission in the suppression of silver futures prices.

“In a video posted on March 18 from the International Futures Industry Conference: Keynote Fireside Chat with Acting CFTC Chairman Rostin Benham

you made the following statement: ‘The resiliency and the market structure of the futures market was able to tamp down what could have been a much worse situation in the silver market.

Also at the conference Behnam appears to have congratulated the commission “for utilizing its authority and some of the tools it has within the margin space to control the price and volatility of the silver contracts.”

Marcus also asks Behnam to explain an assertion made on CNBC in February by the research chief for the Goldman Sachs commodities desk, Jeff Currie, who, in regard to silver, said: “The shorts are the ETFs [exchange-traded funds]. The ETFs buy the physical, they turn around and they sell on the Comex to be able to hedge that physical position like any other corporate”:   Jeff Currie Says ETFs Like SLV Hedge Thus Do Not Track The Silver Price

But if silver ETFs are just accumulations of metal held for the benefit of their investors so their investment can track the silver price, why do the ETFs need to hedge against the metal’s price? If silver ETFs are hedging their own silver, they are nullifying its potential for price appreciation and essentially rigging the market surreptitiously against their own investors.

The use of gold and silver ETFs to short the monetary metals markets for price suppression at strategic moments long has been suspected by many in the GATA camp. Marcus’ letter itemizes much more evidence of improprieties in the silver market, but some of them would be explained by manipulative trading undertaken by, at the behest of, or with the approval of the U.S. government if such trading is legal and outside the commission’s jurisdiction.

Marcus’ letter to Behnam is posted at Arcadia Economics here:   Arcadia Economics’ Letter To The CFTC

Can The Physical Gold And Silver Markets Be Squeezed?

“Generally at every level [of the market] there’s probably a lot more demand than there is supply. Another signal we’re seeing right [evidence of tight supply] is the intense effort in the gold and silver derivatives markets to hold down the prices. One of the motives for doing that is to discourage investors from investing in gold and silver.”

The LBMA just acknowledged that in late January/early February, they were weeks away from running out of silver. The LBMA and the Comex were almost squeezed last March and April. There’s no way know or what will trigger a sustainable squeeze of gold and silver – and force the derivatives price inexorably higher. But it has been closer to happening in the last 12 months than at any time in the last 20 years.

Please note: If you do stand for delivery on the Comex, you must remove your silver bars from the Comex custodial vaults and into private, non-Comex related safekeeping.  This  is of crucial importance.

Chris Marcus (Arcadia Economics) and I discuss this situation in brief podcast:


The mining stocks are once again historically cheap.  In the latest issue I update several of my core portfolio recommendations plus profile Reyna Silver and the Fortuna/Roxgold merger.   If you would like some ideas for investing in mining stocks, take a look at my  Mining Stock Journal.

Gold Market Manipulation And Housing Price Inflation

“March 2021 Producer Prices exploded across the board, with record levels of annualized First-Quarter 2021 Inflation of 8.99% for Total PPI-FD, 16.04% for PPI-FD Goods Sector and 5.62% for PPI-FD Services Sector (BLS)…On the more-meaningful Goods side, Energy and “Core” inflation hit respective historic annualized quarterly peaks of 78.80% and 7.11%…” – John Williams,

The price “deflator” used for the GDP calculation (excluding food and energy) was 2.3% – an absurdly fraudulent “estimate” of general price inflation. In reality the deflator should have been closer to 10% thereby implying that REAL GDP was negative in Q1. This is probably closer to reality given the lousy financial and economic condition of everyone below the top 10% of the wealth/ income demographic in this country.

But of course gold was monkey-hammered shortly after spiking higher when the GDP headline hit. It would look bad to have gold and silver shooting higher while the Fed is flooding the markets with printed currency and with price inflation raging.

Trevor Hall invited me onto his Mining Stock Daily podcast to discuss the current aggressive price control being implemented in the context of a sagging economy and raging price inflation (click on the pic below or list here: Mining Stock Daily):


The mining stocks are once again historically cheap.  In the latest issue I update several of my core portfolio recommendations plus profile Reyna Silver and the Fortuna/Roxgold merger.   If you would like some ideas for investing in mining stocks, take a look at my  Mining Stock Journal.

New And Existing Home Sales: Fact vs Spin

Existing home sales, reported last Thursday, were down 3.7% from February (down 6.3% in February). Wall St was thinking they would rise 0.8%. The seasonally adjusted annualized sales rate dropped to 7-month lows. The reason for struggling existing home sales is three-fold. First and most obvious is rising mortgage rates. If the Fed had not been throwing at least $80 billion per month at the mortgage market, mortgage rates would have been rising since last April and would be much higher than current mortgage rates. This would have prevented the double digit housing price inflation of the last 12 months, which to a large degree is starting to “freeze” housing market activity.

The other two reasons are creations of the Fed and the Government. Existing home inventory fell to 900k homes, down more than 28% from a year ago. I saw a statistic a couple weeks ago that said there’s now more realtors than homes on the market. The primary culprit for the low inventory is affordability – both price and monthly expense. Most households that might otherwise look to buy a move-up home can no longer afford to do so. So there’s no reason for them to sell their house until it becomes unaffordable to maintain. This may be moot anyway because many potential first-time buyers can no longer afford to buy a home period.

Existing home prices were up 18.4% from last March, though down 4.3% from February (nationally, I know some areas are still seeing crazy price increases). While supply and demand are one of the drivers of price, the north of $1 trillion the Fed has thrown at the housing market since last March is the main driver of price.

That, and the fact that the Government has removed debt-to-income and down payment restrictions for conforming Fannie/Freddie mortgages. In addition, the loan limit was raised again this year, which enables homebuyers to take out an even bigger mortgage than last year if they can qualify for a conforming mortgage.  With the conforming debt limit rising every year now, the amount of debt used to buy a home  and rising home prices is nothing more than a vicious self-reinforcing feedback loop.  This has triggered raging price inflation in the housing market. Private-label mortgages are more expensive but they’re even more liberal with loan-to-value restrictions. The latter dynamic is a direct creature of the Fed.

The chart on the right shows the spread between the Fed’s purchase-only house price index (blue line) and the average hourly earnings of production and non supervisory employees (red line). The differential is even bigger now than it was at the peak of the 2003-2008 housing bubble. This trend is not sustainable. One catalyst that might cause home prices to tank is if the Government removes the mortgage payment deferment program, which encompasses around 7 million households. Additionally, many of the urban homes that have been left vacant, by those owners who can afford to buy a suburban/resort home and maintain the urban dwelling, eventually will come on the market.

Since the 2nd quarter of 2020, the share of second home and investor mortgage applications has surged from 7% to 14% of all purchase mortgage application. To my knowledge it has never been higher. This dynamic both removes inventory from the market and drives prices higher.

The bottom line is that the housing market is quickly becoming dysfunctional from the enormous amount of Fed and Government intervention in the housing and mortgage markets.  At some point there will be a nasty correction in prices.

New homes sales were reported on Friday with a headline number that purports the seasonally adjusted annualized rate of home sales jumped 20.7% from February. To be sure, with February’s SAAR number down 16.2% from January and partly attributable to weather-related issues, it makes some sense that new home contract signings (new homes are based on contracts signed) were pushed into March from February. But March contract signings on a SAAR basis were up just 1% from January. Thus, on the assumption that indeed some Feb contracts were pushed into March, it’s quite likely that February and March were both lower than January.

The table above is excerpted from the Census Bureau’s March new home sales report. I’ve highlighted the Jan, Feb, Mar SAAR sequence for the entire country. Keep in mind this is the SAAR data, which includes “seasonal adjustments” plus it annualizes the monthly number. This leaves plenty of room for statistical errors, notwithstanding the usual statistical games played by the statisticians. Also highlighted in yellow is the 90% confidence interval, which means that the actual number falls within a range from -3.7% to +44.4% with 90% confidence. This statistical volatility embedded in the new home sales report is absurd, which is why John Williams refers to the new home sales data series as “nonsensical” and “unreliable.”

Finally, while mortgage purchase applications rose each week during March on average 1-2% per week, the number does not remotely correlate with the alleged 20.7% SAAR increase in contracts signed (“new home sales”). My best guess is that, to the extent that contract signings might have been pushed in to March from February, the Census Bureau’s “adjustment” model overestimated the number of contracts signed in March vs February, given what was likely an higher number of contracts signed in March vs February compared to historical data.

I therefore expect a big downward revision to the March number in April. Also, I’ll note that purchase applications are a decent statistical proxy for sales because 90% of new homes are purchased using a mortgage. That said, the downward revision never captures canceled contracts – which typically run about 10% per quarter right now – because the Census Bureau does not track cancellations and does not revise its estimates based on actual canceled contracts.

One last interesting note on new homes sales. The median price was down 4.4% from February and 10% from the high in December. If the market were as hot as the media makes it out to be, homebuilders would not have had to take a hatchet to new home prices. While lumber inflation won’t be disastrous for homebuilder Q1 numbers, falling prices and rising cost inputs will have a highly negative affect on homebuilder earnings in Q2. In all of the housing market analysis I’ve seen lately, this factor has not been mentioned with regard to homebuilder earnings.

The housing sector is as tough as any to short right now, but that may be changing. It takes 6-7 months to build a new construction home. Maybe a little quicker for the crappy Beazer and KB Home homes. The price of lumber has gone from $260 to $1370 (110,000 board feet contract). But it’s not just lumber. Price inflation has affected the cost of pretty much all of the materials used to build a home including labor. And selling prices appear to be falling. With these headwinds I have to believe homebuilder numbers will suffer starting in Q2. At some point the stock market will start to anticipate this.

Coinbase $COIN Is A Tremendous Short Opportunity

In an eerie parallel to late 1999/early 2020, retail “investor” money has flooded into the stock market. The rush of newbies are signing up in lemming-like droves for corrupted stock trading apps like Robinhood. Schwab reported opening 3.2 million new accounts in Q1. Most if all of these newbies did not know and still do not know anything about fundamental stock and GAAP financial analysis (some of them manage $10’s of millions on behalf of individuals – Gerber Kawasaki comes to mind). On balance, these folks think “GAAP” is a place to buy clothing.

Wall Street manages to suck in retail money to fleece them with corrupted securities like SPACs and money-losing Silicon Valley stock scams. Enticing them into the shares of insanely overvalued companies, many of which will no longer exist two to five years from now.  Meanwhile the early investors and insiders with low-to-no cost stock are dumping their bounty onto the unsuspecting mass of newly minted trading “experts.”

$COIN is the perfect example. Coinbase operates a cryptocurrency exchange platform. Founded in 2012, it is the largest cryptocurrency exchange by volume in the U.S. COIN went public via a Direct Public Offering on Wednesday. In a DPO, existing shareholders register their shares for sale and unload them on the pubic. No new shares are created and the proceeds from the stock sold does not go to the company. Rather, the money from the sale of stock goes to the selling shareholders. COIN has approximately 205 million shares issues, of which 114.8 million were registered for resale. Fully diluted COIN has 261 million shares o/s.

The Wall Street spin on this type of transaction is that it creates market liquidity for a company like COIN to raise equity capital at some point. This is little more than mendacious propaganda. In truth, this type of share sale offering enables insiders with low-dollar cost shares to take advantage of the largest stock bubble in history and unload billions worth of private stock onto the public, many of which are retail “investors” who have been sucked into the stock market by the allure of “easy money.”

In terms of valuation, COIN closed Monday at $332, giving the Company an $86.7 billion valuation using the fully diluted share-count . Based on 2020 revenues of $1.28 billion and net income of $322 million, this values COIN at 67.7x sales and 269x earnings. This is an insane valuation for a any company, let alone a company who’s business model is neither untested nor has it stood the test of time. Compare this to the CME, which has a market cap of $73.8 billion, is highly profitable and which has been in business since 1848. The CME trades at 4.9x sales and 35x net income.

COIN was priced at $250 on Wednesday. It opened at $381. In the first 10 minutes it traded up $429 then spent the next six hours falling almost non-stop down to $310 before bouncing a bit to close at $327. Since then it has largely traded sideways between $320 and $340, although today the stock broke below $320 after $ARKK’s Cathie Woods – who gets her investing inspiration from the New Testament, piled into shares greedily last week and yesterday (Monday, April 19th). I’m wondering if she knows the shares she’s purchasing using OPM are coming from insiders who can’t wait to dump them on stool pigeons like her.

In the chart above, everyone who bought shares at a price above the white horizontal line is underwater. This includes ARKK’s Cathie Wood, who sold some TSLA shares and bought $246 million worth of Coin last Wednesday and has added as the stock goes lower every day since then – her latest purchase being Monday at levels well above where the stock is trading now.

I don’t know how long it will take for speculators’ love affair with cryptocurrencies to sour. But make no mistake, the fate of these digital coins, especially Bitcoin, is directly correlated with the stock market bubble. By the end of 2017, Bitcoin had run to $20,000. Concurrently, the SPX hit an all-time in late January 2018. Between then and late December that year, the SPX had dropped 18.1%, largely in two big draw downs. Similarly Bitcoin tanked from $20,000 to the low $3,000s. Bitcoin traded in a lateral channel between $5,000 and $10,000, until the trillions printed by the Fed sent both the stock market and Bitcoin soaring.

And then there’s the biggest risk, which is completely ignored by crypto bulls: Central Bank and government regulation. COIN was forced to acknowledge this in its public offering prospectus under the section on risks: “changes in the legislative or regulatory environment, or actions by governments or regulators.” The latter refers to possibility that governments will forbid the use of cryptos as legal tender.

On January 27th this year, the General Manager of the Bank for International Settlements (the Central Bank of Central Banks), Agustin Carstens, gave a speech titled “Digital currencies and the future of the monetary system.”  This is a must-read speech for anyone interested in cryptos because it’s a subtle message from the BIS about its view on private cryptos.

In this speech he specifically asserted that Bitcoin is “a poor store of value” because of its volatility and because the market is “decidedly concentrated and opaque.” He further stated “investors must be cognizant that Bitcoin may well break down altogether.” Carstens went on to explain that it is an essential government function to provide the framework for a stable monetary system and that if the global monetary system is to be based on digital currencies, it is the Central Banks that should be the issuers.

My point here is that the speech referenced above, in conjunction with the multiple pejorative remarks toward Bitcoin from the ECB and the Fed and from Treasury Secretary, Janet Yellen, suggests to me that, at some point, government authorities and Central Banks will make a move to severely limit or eliminate the use of private cryptos.

The bottom line is that, given all of the systematic and unsystematic risks attached to the asset class on which COIN bases its business model,  COIN is a tremendous short opportunity once shares become readily available to borrow or options on the stock begin trading.  The upside is limited, at best, and we know insiders are continuously dumping their shares.  The downside potential is easily 90%.


The commentary above is an excerpt from the Short Seller’s Journal, a weekly newsletter that dissects the latest economic reports and presents ideas for short seller’s. You can learn about it here:  Short Seller’s Journal information.

Penn Gaming ($PENN) Is Still A Fantastic Short

PENN is now down $25 (21%) from when I presented the idea in the February 14th issue at $118. After wrestling with its 100 dma since March 29th, it closed a bit below it on Friday and decidedly below it today.

PENN’s Chairman Emeritus sold 3,000,000 shares on February 8th worth $371mm. It represented 66% of his holdings. Three other directors sold 1.7mm shares that day. The CEO on March 15th exercised $13 stock options on 71,450 shares and immediately turned around and dumped them for $140, netting $11 million. Insiders are voting with their wallet on their view of the prospects for the Company.

PENN owns, manages or has ownership interests in 41 gaming and racing properties in 19 States. In February 2020 Penn completed the acquisition of a 36% interest in Barstool Sports, the online sports betting company, for $136 million in cash and convertible preferred stock. In 2023, Penn has the option to take its ownership interest in Barstool up to 50%. When I was a junk bond trader in the 1990’s I traded the gaming sector bonds. And Penn was a junk bond company building out a riverboat gaming business in the States that had legalized it back then. It also operated horse racing tracks.

As you can imagine, PENN’s business has been hit hard by the virus crisis. For the full-year 2020, Penn’s revenues declined 32.6%. It’s Q4 revenues were down 23.4% vs Q4 2019, indicating that its casino business improved vs the first nine months of 2020 as the public became more comfortable venturing into venues like casinos. Adding back the non-cash impairment charge in Q4 2019, Penn’s operating income fell 35.2% YoY for the quarter.

Interestingly, the management asserts that it was able to cut costs quite a bit in response to the disruption in operations caused by Covid. However, in Q4 its operating costs were 88.3% of revenues vs 85.8% of revenues in Q4 2019 (after subtracting the impairment charge from expenses). It looks to me like management is blowing smoke about expenses.

The rationale behind shorting Penn is that, on a price/sales basis, PENN is valued at nearly twice most of its competition. The casino companies like MGM or Boyd Gaming trade around 2.5x trailing revenues, whereas PENN trades at 4.7x trailing revenues. I suppose if Penn were able to generate high revenue growth, 4.7x might not be inappropriate. But its revenues took a 30%+ hit in 2020. It’s not clear that the revenues will ever bounce back to pre-Covid levels, let alone generate the type of growth that justifies the 4.7x revenue multiple.

PENN started 2020 at $25. While several analysts attribute PENN’s absurd rise in price to its affiliation with Barstool, the deal was announced on January 29, 2020 and the stock rose from $27 to $38 over the next two weeks. While the deal might have been responsible for the $11 rise in PENN, there is absolutely no fundamental basis in PENN’s operations plus its 36% interest in Barstool to justify the current market cap.

Penn’s interest in Barstool is accounted for as a Variable Interest Entity. As such, it’s not consolidated into Penn’s financials and is treated using the equity method of accounting. Penn records its share of Barstool’s earnings as revenue from investment on the income statement. Well guess what? In Q4 Penn recorded $1.6 million in net income “attributable to non-controlling interest.”  This may or may not include some positive income from Barstool, but the Company has other VIE’s which may have produced that non-cash accretion to net income.  Given the numbers available from Draft Kings, it’s more likely that Barstool loses money.

Since the Barstool investment, Penn’s market cap has shot up $12.5 billion to as high as $22 billion on March 15th this year.  And since the time of the Barstool investment, And several gaming companies are rolling out digital sports betting apps. This will affect Barstool’s market share and value adversely.

Yes digital sports betting is a lot of fun (I use Draft Kings and BetMGM) and there will be more States that legalize sports betting in the future, but PENN’s valuation is beyond absurd. PENN earned $43.9 million for the full year in 2019, pre-Covid. On that basis, PENN is trading at a 345x p/e.

With or without Barstool Sports included, PENN is ridiculously overvalued. Gaming is hyper-sensitive to economic cycles. Given my assessment of the current economy, and my belief that the U.S. economy will be at best sluggish for the foreseeable future (Jay Powell in so many words admitted that in a speech recently), I do not see Penn’s revenues or net income recovering from Covid anytime soon.


The commentary above is an excerpt from the Short Seller’s Journal, a weekly newsletter that dissects the latest economic reports and presents ideas for short seller’s. You can learn about it here:  Short Seller’s Journal information.

Stock Market Risk-Taking Is Going Parabolic

The “beta” for long/short equity hedge funds has more than tripled vs the average beta since at least December 2018. Beta is the most common measure of stock or portfolio volatility relative to a broad equity index. Technically, beta is the percentage change in a stock (or fund) for every one percent change in the index.  A stock/fund with a beta of 1 tends to move in percentage correlation with the index. A beta of 2 means a stock/fund moves 2% for a 1% move – up or down – in the index.

As this applies to long/short hedge funds, it means these funds in aggregate have substantially increased their long exposure to the riskiest stocks. For long/short funds, it also likely signals that the net long position is at its highest in a long time and/or the amount of margin/leverage applied is soaring. Hedge funds have been underperforming passive investment funds and the broad indices. My bet is this huge allocation to riskier stocks is a reckless effort to raise hedge fund performance numbers – using other people’s money – and thereby  attempt to maximize performance fees charged.

The bottom line is that hedge funds are taking considerably more risk with investor money (think: pensions) than historically. When the market eventually craps out, this will not end well, especially for pension funds, which themselves have increased their equity allocation, on average across public pensions, to 80% vs 40-50% historically. I would also suggest that this another indicator that a market top draws closer.

The fear of missing out on the “next” market melt-up is huge right now:

The American Association of Individual Investors (AAII) sentiment index hit a three-year high for the for weekly period ending April 7th, with nearly 57% of the respondents expecting the stock market to be higher in the next six months. The last time this index was higher than it is now was January 2018, right before the SPX dropped 10% in nine trading days. Furthermore, the AAII bearish sentiment reading has hit a post-virus crisis low, with just 20.4% of the survey respondents feeling bearish. This is lower than the reading in late 2019, which preceded the market crash that started in February 2020.

The surge in risk-taking and individual investor euphoria drove both the Dow and the SPX to new highs this past week. The Nasdaq launched off its 100 dma and was up 3.1%, though it is still below its ATH on February 12th. The Russell 2000 declined marginally on the week. It’s notable that volume declined every day this past week and, on average, was at its lowest since mid-February. Call option volume also continued to decline.

Data for the latest week shows the insider sell/buy ratio jumped more than 100% from the prior week to 45x from 21x. This means that insiders sold 45x more shares than they purchased. Keep in mind “purchase” often refers to stock received by exercising low-dollar or zero-cost stock options which is then sold.

Bloomberg featured a report on Thursday that a “whale” account made a huge bet on a big move in the VIX, which closed at $16.69 on Friday. The account bought 300,000 July VIX 25 call options and sold 300,000 July VIX 40 calls. This is a bet that the VIX will close between 25 and 40 by mid-July.  A sophisticated speculator is speculating on a big sell-off in stocks sometime between now and July.

Despite running up 13 days in a row, the S&P 500 is historically overvalued.  The technicals, like the RSI, are flashing “overbought.”  While public officials like Jay Powell  and Janet Yellen deny the the idea that stocks are in a bubble (see former Fed Head, Ben Bernanke, comment in late 2007 that subprime mortgages were contained for credibility of Fed official assertions),  the metrics combined with the fundamentals suggest the stock market is poised for a very painful drawdown.

At some point the Fed’s money printing will diminish the value of the U.S. dollar at to the point at which the law of diminish returns (from money printing) forces impotency on official market intervention.   Historical experience in on the side of this viewpoint.

The Early Stage Of Breakouts In Gold, Silver And Mining Stocks

“Management withheld metal [silver] from sale during the price correction over last two weeks of March and plans to sell the withheld metal inventory in anticipation of a precious metal prices rebound in Q2, 2021” – Endeavor Silver ($EXK) management, Q1 earnings report

It’s rare to find a stronger statement of conviction for the price potential of gold and silver than for a company to withhold production from the market in the anticipation of higher prices for the precious metals. I would argue that implicit in that view from EXK is the acknowledgement that the prices of gold and silver are actively manipulated.

But the inflation genie is out of the bottle now and India, China and Russia – along with several other eastern hemisphere countries (Hungary’s Central Bank just tripled its gold reserves) – are furiously importing gold bars.

Craig “Turd Ferguson” Hempke – TF Metals Report and Sprott Money – invited me back onto his TFMR Thursday podcast to discuss mining stocks and the precious metals sector and to have some fun:

TFMR Link:  Thursday Conversation



The next big move in financial assets will come from the mining stocks.  Mining stocks offer  potential wealth enhancement through exposure to the “optionality” upside of price gold and silver prices.  If you would like some ideas for investing in mining stocks, take a look at my  Mining Stock Journal.