“The housing market is 100% a function of the Fed’s money printing. Half the money the Fed printed, $2.2 trillion, went directly into the housing market.”
Analysts and financial media meatheads look at the $4.5 trillion created by the Fed and truly believe that it wasn’t money printing because it’s “backed” by Treasury bonds and mortgages. But this is pure ignorance. Not taken into consideration is the amount of credit and debt issuance enabled by using the $4.5 trillion as the “reserve capital.” It’s fractional banking on steroids.
As the U.S. financial system reaches its limit on the amount of debt that can be serviced from the current level of wealth output, what happens next? We’re already seeing what happens in the housing market per the fact that the homebuilder stocks are in an “official” bear market, with some of them down over 30% since late January.
Then what? The Fed will have to print multiples of the original amount it printed or face systemic collapse. At that point the precious metals sector will soar beyond anyone’s imagination at this point in time.
Phil Kennedy (Kennedy Financial) invited me to discuss these issues on his podcast. Phil’s podcasts blend truthseeking, facts, humor, humility and sarcasm. It’s well-worth the time spent to listen:
“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.
According to the latest Commitment of Traders Report released Friday and which accounts for Comex trader positioning through Tuesday, August 21, the hedge fund net short position in Comex paper gold futures soared to an all-time high of 89,972 contracts. This represents nearly 9 million ounces of paper gold. It’s more gold than is produced by gold mines in the U.S. annually. As of Thursday, Comex vault operators reported a total of 8.4 million ounces of gold, only 282,000 of which were available for delivery. In other words, the hedge fund paper gold short position exceeds the total amount of gold in Comex vaults.
Conversely, the Comex banks are taking the other side of the massive hedge fund short bet. Given the history of extreme positioning by the hedge funds and the banks (the banks are normally short paper gold – thus a long position by the banks is considered “extreme”), it’s a safe bet that at some point in the near future gold (and silver) are set to soar. Perhaps the more interesting question would be to ask why the banks have assumed a large long position in gold. What is it that the banks “see” that has them positioned for a big move higher in the precious metals?
Meanwhile, Tesla is the ultimate evidence that no price discovery is not possible in the U.S. stock market. In a market with true price discovery, TSLA would no longer exist. It appears as if Elon Musk was indeed under the influence of illicit psychotropic drugs when he claimed that funding was secured for a going-private transaction.
In this episode of “WTF Just Happened?” we discuss the massive hedge fund paper gold short position plus lift our leg the idea that Tesla will be around in two year (WTF Just Happened is a produced in association with Wall St. For Main Street – Eric Dubin may be reached at Facebook.com/EricDubin):
I felt compelled to clarify the commentary out “there” discussing the non-commercial short position in gold. An interviewee on one of the widely viewed precious metals and economic websites referenced the record “speculator” short position in Comex gold futures.
In my opinion this is misleading because it is the “managed money” segment of the non-commercial “speculator” trader category in the CFTC’s COT report that encompasses the entire net short position (click image to enlarge):
The image above shows the latest disaggregated COT report. The disaggregated COT report debuted in October 2009. Disaggregated data was made available going back to June 13, 2006. Previously the report was separated into “Commericials, large speculators and non-reportables.” The large speculators were the “managed money and other reportables.” The “managed money” is primarily hedge funds. No one outside of the Comex operators can say exactly what the “other reportable” category is (many attempts have been made to get clarification over the years). It’s likely larger pools of non-institutional capital like family office money and wealthy foundations. The “non-reportable” category is retail accounts.
I will note that when JP Morgan was caught and fined for mis-reporting the Comex silver futures trades it clears, the bank was caught stuffing trades that belonged in the “swap dealer” account into the “other reportable” account.
This clarification is important to point out for two reasons. First, as you can see, in the non-commercial trader accounts, the hedge funds comprise the entire amount of the non-commercial/non-bank net short position. The Other Reportables and Non-Reportables are net long. In fact, the Other Reportables increased its net long position last week.
Second, not only is the hedge fund net short position at a record level, the “Swap Dealer” (i.e. the banks) account is close to an all-time net long position at 31,259 contracts. Based on the historical disaggregated spreadsheet maintained by my business partner, the only time the bank net long position was larger was a two-week period in December 2015 (12/15 – 32,550 and 12/22 – 31,692) and a two-week period in July 2017. However, during the July 2017 period, when the swap dealers were net long at a record level, it was also accompanied by a net long position by the hedge funds. Overall the commercial category in mid-July 2017 was still short over 70,000 contracts (the “producer/merchant/processor/user” commercial category includes bank positions that are theoretically not used to hedge).
I wanted to clarify the issue with the COT report because it’s important to note that the banks are almost always right with their gold futures positioning and the hedge funds are almost always wrong. The implication of this is obvious.
I discuss the significance of the net long/net short positioning by the banks and the hedge funds in Comex gold futures with Trevor Hall of Clear Creek Digital in our collaborative project, Mining Stock Daily (click on image below to listen – this was recorded before Friday’s COT report was released):
Mining Stock Daily can also be accessed using Amazon Alexa, Google podcasts and Apple i-Tunes.
“We’re now forecasting slower revenue growth for the third quarter based on an unexpected drop in Redfin’s bookings growth in the past three weeks, slowing traffic growth in a weakening real estate market.” – CEO of Redfin (RDFN) on the earnings conference call. Redfin stock plunged 22% after it reported its latest quarter this past Thursday after the market closed. I’ve been recommending RDFN as a short for several months in my Short Seller’s Journal.
I joined Elijah Johnson and Eric Dubin on SD Bullion’s weekly Metals & Markets podcast to discuss the popping housing market bubble and to explain why the risk of missing a big move higher in the precious metals market is much greater than the risk of more downside from here:
I just released my latest issue of the Short Seller’s Journal in which I explain why Tesla’s days may be numbered and I offer ideas for speculating that TSLA goes to zero sometime in the next two years. I also update my homebuilder short-sell ideas. You can learn more about this newsletter here:Short Seller’s Journal information
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:
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
After moving significantly higher on Wednesday and Thursday following the dovish monetary policy issued by both the Federal Reserve and the ECB, the precious metals were ambushed Friday morning by the Comex bank cartel. Right before the Comex gold pit opened on Friday, thousands of gold and silver contract were dumped wholesale into the Comex Globex computer trading system. The deluge continued for over an hour (click on image to enlarge):
The chart above is the July Comex paper silver. From 8-9 a.m. EST, 21,922 silver contract were dumped on the Comex. This represents 109.6 million ozs of silver – roughly 13% of the total amount of silver produced my silver mining annually. It also represents 40% of amount of physical silver allegedly held in Comex silver vaults as reported by the vault operators (primarily JP Morgan, HSBC and Brink’s). Friday was by far the largest volume day for the July contract going back to late April, when July became the “front-month” contract for silver. The same dynamic occurred in gold on Friday.
In the latest episode of “WTF Just Happened?” we discuss how and why the precious metals were smashed on Friday, as the Comex banks printed $10’s of millions in profits covering their enormous short positions in paper gold and silver ((WTF Just Happened is a produced in association with Wall St. For Main Street – Eric Dubin may be reached at Facebook.com/EricDubin):
I recommended Arizona Mining in May 2016 at $1.26 to my Mining Stock Journal subscribers. It was acquired today for $1.3 billion, or $4.65/share. Visit these links to learn more about the Investment Research Dynamic’s Mining Stock Journal and Short Seller’s Journal.
Patrick Vierra of Singapore Bullion invited me to discuss precious metals, the stock market and the fiat currency-fueled asset bubbles that will blow-up sooner or later. I explain why investing in gold requires a long term perspective on investing and wealth preservation, why gold and mining stocks are extremely undervalued right now and why the world wants out of the U.S. dollar.
Singapore Bullion is Singapore-based bullion dealer and bullion storage facility with a wide-array of products and services – the podcast is ad-free:
01:37 Gold – A Long Term Perspective
08:14 Was 2015 the bottom for gold price?
13:14 Gold – One of the Best Performing Assets
14:45 Bullion vs Mining Stocks
17:10 Gold is very undervalued right now
19:20 The COMEX cycle that impacts the gold price
21:47 Silver will outperform gold
25:00 How overvalued are the stock markets
30:11 How every U.S pension funds will ‘blow up’
32:40 The ratio of paper to physical gold
35:01 Housing bubble rearing its head again
39:51 “Trump loves debt!”
41:09 Fed rate hike to prick the housing bubble?
45:25 The world wants out of the dollar
You can learn more about my research and stock idea newsletters here:
The Mining Stock Journal is twice per month, every other Thursday evening. The Short Seller’s Journal is weekly, every Sunday evening. The last mining stock purchase recommendation (May 17th issue) is up 10.5% in the last five trading days. It’s going higher – a lot higher. My Short Seller’s Journal subscribers have been raking in the profits in my homebuilder short ideas.
This analysis is an excerpt from the opening market commentary in my April 19th issue of the Mining Stock Journal.
I was looking at some charts with a colleague two weeks ago and was startled to discover that a very quiet bull move has begun in the miners. Like the move that began in late 2015, it seems that some of the junior miners per GDXJ have gotten the party going. As you can see in the chart above, GDXJ is up 12.8% since December 7, 2017. GDX is up 9.5% since March 1st. Some individual stocks are up quite a bit more than the indices: AEM up 18% since March 1st, EXK up 49.7% since Feb 9th, Bonterra up 25% since March 1st, etc.
The chart below is two weeks old but the bull pattern in GDX (and GDXJ, HUI, etc) has continued after a brief pullback (which in and of itself is bullish):
In my opinion, the charts in the sector are beginning to look quite bullish. I would like to see the Comex gold futures open interest drop 70-80k contracts – it was 499k as of Friday’s close. However, if a bigger move than has occurred already starts now, the big Comex banks will be forced to cover their large short position in gold futures. This will “turbo-charge” the move [in fact, per the latest COT report, the Comex banks continue to cover shorts and reduce their net short position and the hedge funds continue to dump longs and add to shorts – historically this shift in trader positioning has preceded big bull moves in gold/silver].
Silver is also starting to form a very bullish base:
Wholesale silver eagle premiums are creeping higher, as are retail premiums. Perhaps the big inventory overhang that had formed over the last year is starting to clear out. Also, silver mining stocks, especially the ones that actually produce and sell silver, have been quietly outperforming just about every stock sector (I have had a buy recommendation on a smaller silver producer since early October 2017 – the stock is up 20% since that buy recommendation (I own it) and it’s up 47% since it bottomed in December.
From a fundamental standpoint, given the deteriorating financial condition of the U.S. Government and the escalating rate of inflation and geopolitical risks, the planets are aligned for a big move in the precious metals sector. If the banks continue to reduce their net short position in Comex paper gold – and concomitantly the hedge funds continue to reduce their net long position – then both the planets and the stars will be aligned for a move in the sector that I believe will take a lot of market observers and participants by surprise.
The Mining Stock Journal is a bi-weekly (twice per month) newsletter that offers in-depth precious metals market commentary and, primarily, junior mining stock ideas. My goal is to find the hidden “gems’ ahead of herd. You can find out more here: Mining Stock Journal information.
Wow great report…by the way I have cancelled most of my precious metal subscriptions except your’s…. You do a treat job for us! – from “Robert,” received last week
Below is a must-read essay from a friend and colleague of mine, Chris Marcus, who is a former options trader (Wharton MBA) that now lives in Denver. Many of you may not be aware, but Mark Cuban made his fortune the old fashioned way – he was lucky to be in the right place at the right time. Cuban owned Broadcast.com (a relic of the 1990’s tech bubble). Yahoo.com used tech bubble stock “wampum” to acquire Broadcast.com. Broadcast.com was no longer around a few years later.
If anyone knows how to get lucky off a worthless asset, it’s Mark Cuban. Currently he spends his time running the Dallas Mavericks into the ground. Chris Marcus eloquently presents the counter-argument to Mark Cuban’s absurd comments about gold in a Kitco.com interview.
During my time training to be an equity options trader, the shop I worked for required that I log 100 hours of poker training. Under the belief that there are great similarities between the decision-making required for poker, and that required for successfully trading the financial markets.
Along those lines, there was a particular lesson that always stood out to me. That while the numbers and percentages are important in both sciences, understanding the people you are playing against is equally, if not a more important element of the game.
Because you might think you’re right, and the person you’re trading against might think they’re right. But if you can identify why they’re wrong and spot the flaw in their thinking, that can really arm you with some confidence in your bet.
If you’ve seen the movie The Big Short, you may remember the scene where right before one of the funds was getting ready to increase the size of their bet against the mortgage industry, they were a little bit concerned.
But to ease those fears, the Deutsche Bank character played by Ryan Gosling took the fund managers to meet the people they were actually trading against. Because once they heard how the people they were trading against were completely caught up in the mania and missing the bigger picture, it gave them the confidence to pile on their trade in even bigger size.
Along those lines, for those investing in gold and silver, there were some interesting recent comments from Dallas Mavericks owner Mark Cuban. That are somewhat reflective of the mainstream view of gold, and similar to the rhetoric you hear out of the central banks.
Which in my own personal opinion comes as extremely fantastic news for those who own precious metals and wonder whether there is still upside to the pricing.
Cuban was interviewed by Daniela Cambone of kitco.com. And with all due respect to Mr. Cuban, some of his answers were so far detached from the reality I’m living in that the more I heard him talk, the more I was tempted to dial Andy Schectman and buy more gold.
Consider the following:
Cambone: Where do you think are some of the safest bets for your money right now?
Cuban: If you need safe, just put the money in the bank. (Editor side note – seems safe to say at this point that Cuban likely hasn’t been reading Von Mises during halftime at the Mavs games).
Cambone: Gold, up 2.5% for the first quarter. I know in the past you’ve seen it as a speculative bet. How do you see it today?
Cuban: I hate gold. Gold is a religion. There’s some fundamental value to gold, but everything else…it’s a collectible.
Cambone: Well hate is a strong word. The miners too?
Cuban: Individually as people, I heard they’re great people (he says giggling). But as an investment, hate is not strong enough. Hate with an extreme prejudice.
Cambone: So you don’t see gold as money.
Cuban: I do not see it as an alternative to currency. No not at all.
Cambone: Do you feel the same about silver, palladium, or platinum?
Cuban: I don’t know those others as well. But those are pretty much based off their intrinsic value as much as I can tell.
Cambone: So you’re in the camp of gold is just a pet rock.
Which makes his current comments all the more baffling. Although perhaps Cuban doesn’t see any cause for concern with rising interest rates and foreign creditors walking away from the dollar system.
Ultimately what Cuban thinks about gold may be irrelevant. Yet to the degree that there are many in the markets who share a similar line of thinking, it’s worth registering that if you own gold, this profile and argument is essentially what you’re betting against.
Personally I receive it as great news. Because in my career, the best trades are not when a person thinks they’re right and puts the trade on. But when a person thinks they’re right, knows why the other person is betting against them, and can spot the flaw in that person’s logic.
I’ll leave it up to you to decide whether Cuban’s argument makes much sense. But his views are generally reflective of what the anti-gold crowd is thinking, and it makes me feel better than ever about owning physical gold and silver. (Article LINK)