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Amazingly, while gold and other commodity
related stocks continued to be sold off to levels that are at deep discounts
to their intrinsic value in October, gold continued to break to new all time
highs in most major currencies. On October 9th and 10th gold recorded new all
time highs in many currencies including the Euro, the Australian Dollar,
British Sterling, the Indian Rupee, the Russian Ruble,
the South African Rand and many others. The Dow Jones Industrial Average
Stock also recorded a multi decade low in terms of gold. Investors are
getting a very much skewed view of gold’s performance if they are
viewing it in terms of the US Dollar or Yen. These are the two main
currencies that have been used as cheap funding sources allowing speculators
to take on incredible degrees of leverage to invest in higher yielding assets
with much better fundamentals. The excessive debt is being unwound causing a
very unnatural rise in the dollar as overleveraged investors raise dollars to
pay down their excessive debt. This has caused an unlikely gift from heaven
for foreigners holding dollars to sell their dollars which are being printed
like at no other time in history while at the same time they are rising in
value due to the even bigger buying by debtors selling other assets to pay
down debt. The same is happening to the yen which is why in these two
currencies gold has not yet recorded another new high like it has in the
majority of other currencies.
The manipulative attacks on gold and silver
are getting more and more desperate and obvious to the masses. You could say
the action on October 10th went just a little too far to the point where even
the mainstream press and media are commenting on the price discrepancies
between paper silver and gold trading on the Comex and physical silver and
gold which is ever more difficult to find available at any price. While the
stock market was melting down on that day, gold went from up $40 to down $75
in a matter of hours. Silver went from a high of $12.32 to a low of $9.42 as
well. Meanwhile in the physical markets for silver the best price I could
find for silver was $16.50 per ounce, a whopping $7+ over the
“market” price on the Comex. That is an incredible 75% premium!
One ounce silver coins go for more than double the spot price on eBay. The
manipulation has become so obvious we are seeing a steady decline in the
weekly Commitment of Trader’s Report open interest figures for gold and
silver. Could it be that investors are finally realizing that market is a
total scam? The manipulators have been so outrageous, they are precipitating
their own downfall as Comex longs are increasingly demanding delivery rather
than rolling forward. After all, you can take delivery and now sell it for as
much as a 75% premium in the physical markets on eBay, for instance. At this
rate they are in huge danger of having their scam market revealed since there
isn’t more than a fraction of the silver available for all of the
demand which has been growing rapidly in recent times. This should soon
result in a reemergence of demand for gold and
silver equities as the convenience of the futures market and very probably
the gold and silver ETFs are called into question. When
the fraud is removed, be prepared for the biggest gold and silver stock rally
of all-time. Right now the stocks are being sold with no attention to the
underlying attributes of individual shares. While many gold and silver stock
investors have had enough and want out at any price, those buying in this
selloff are picking up stocks of companies trading at less than ONE! times earnings or cash flow and as little as 30% of the
cash companies have in the bank. I don’t know if there has ever been a
time in history where a group of stocks has traded so cheaply while their
operations have performed so strongly and that is despite tremendous
manipulation and suppression in their underlying products which are priced
way below what they will be in a free market.
How could this have happened? This is what we
have heard from insiders that witnessed some of the actions which engineered
the selloff in the commodities sector.
Back in July, days before Fannie Mae and
Freddie Mac were to be rescued, Bernanke and Paulsen were faced with a
horrendous Consumer Price Index release of +5.4% which had already been deceptively
massaged lower through various methods such as substitution, hedonic pricing,
and geometric averaging, generating a number so low it bears no relationship
to reality. Even with all the massaging lower of the CPI it was felt it had
reached a level that would be most worrisome to the masses, particularly
since gold and silver were working their way toward new highs recorded in
March right around the time Bear Stearns blew up. Incidentally, it has
recently been discovered that Bear was likely attacked by other financial
firms since it was long $12 billion in gold derivatives and was not doing its
part in the gold suppression scheme. Bear was no more bankrupt than all the
other major banks and brokers, however, with the incredible leverage these
organizations have taken, (most all are leveraged over 30 to one), a rumor about such a firm’s liquidity will soon
become a self-fulfilling prophecy since there is constant refinancing going
on.
Paulsen knew that top performing hedge funds
had been making a killing riding up the long term
wave of higher commodities and shorting financials. He was already validated
in 2006 by his successful efforts to drop energy prices by getting his
ex-employees at Goldman to change the weighting in the widely followed
Goldman Commodity index over night. This caused a cascade of selling by
indexers when the surprise change hit the press. The scrambling resulted in
the failure of Amaranth, a large hedge fund specializing in energy which
caused more selling.
This time it has been reported that in July,
Paulsen went to big institutional investors such as CALPERS which had big
exposure to the well positioned commodity sector and after relaying the
seriousness of the condition of the financial system, persuaded them to sell
their commodity related investments “for the good of the nation”.
He wanted to turn the inflation scare suddenly to a deflation scare. With a
few big institutional investors leading the way combined with rampant naked
short selling of gold and silver equities by the likes of Goldman reported by
Canadian brokers, a wave of selling in this area was put in motion that
snowballed. The illogical selling resulted in broken technical patterns of
stocks resulting in more selling. This has resulted in a high level of
redemptions in gold funds that forces managers to sell even when the stocks
trade lower than the cash the company has in the bank. A way to check if this
is what happened is to analyze individual companies and see how they have
performed. For the most part there is nothing that should result in a
selloff, as these businesses are among the strongest in the world today
despite suppressed prices for gold and silver that would be much higher at
this time.
It is truly a disgrace that the modus
operandi of our financial leaders is to send false signals to the marketplace
and cause cascading selling and buying after having those in the know
positioned to take advantage of the effect. That could have another name
– robbery. The bifurcation between the price of the physical gold and
silver market and the “market price” as represented by the Comex
is an indication that a vast number of participants in these markets have
come to the realization, finally, that the market price on the Comex is a
total sham. It is most unfortunate that those that have invested in gold and
silver to protect precisely against the financial dislocations that have
accelerated since Bear Stearns was driven to insolvency, are putting in for
redemptions or selling personally because “something is wrong”. Physical
gold and silver in your own possession can not be ruined although its
perception can be tainted by those that believe the fraudulent pricing from
the Comex actually means something. Gold and silver are the mortal enemies of
fiat money since fiat is always eventually abused to the point of
worthlessness. Since the very banks which have an interest in seeing gold and
silver discredited have access to unlimited borrowings from the Fed and have
no restrictions whatsoever from driving the price of the metals and the
stocks down, you can not rely on any message that lower prices of these
invaluable assets is bringing. There are huge numbers of investors that are
currently paying 70-100% over Comex prices for silver and 15-20% over for
gold. These people are clearly not paying attention to what the Comex
“market” reflects. Gold and silver serve a very special function
in the protection of one’s assets and in a fiat money system gone
totally out of control that is even more true. Investors
need an appropriate weighting in precious metals that should not be sold
because a line has been broken on a technical analysis chart. Even though it
does not seem to be working while it is apparent that it should, it is the
type of asset that will probably work all at once, when the constant
manipulation is suddenly overcome by natural forces. Central bankers and the
money powers are masters of all things paper. They very cleverly found a
vulnerable area to exploit when they noticed hedge funds were very long in
this area and that they were using excessive leverage. With a little
cooperation from a handful of very large institutional investors they were
able to initiate a domino effect of selling making this traditional safe
haven look totally ineffective while in reality the selling is a result of
holders using leverage and self defeating stop losses that takes them out of
the sector when it is most needed. Those that were overexposed or leveraged
in this area should bring their weightings down to an appropriate level but
to abandon the sector completely at this time is very foolish. Gold and
silver should protect assets from either inflation or deflation; however, a
very rocky period before that protection becomes apparent should not be
totally unexpected and reflects no understanding of what the recent manic
money creation will bring about. The huge losses being experienced now are
more due to not understanding this than anything else. Stocks can protect
somewhat in a period of inflation but bonds would be lethal and unrecoverable.
Deflation would make highest quality bonds acceptable but stocks would
suffer. Cash would only protect in the case of deflation or in the initial
stage of inflation coinciding with the period before that inflation rolls
into the real economy. That is probably what is occurring now and you should
be protected in t-bills until it is apparent that inflation is going to be so
high that your purchasing power will be wiped out rapidly. In an era when
most all major banks are recklessly leveraged at 30-40 times their equity it
is clearly not safe to have much cash vulnerable to likely bank failures. To
do a check on these statements look at the evidence from the Bank of
International Settlements. Despite the belief that banks and financial
companies are deleveraging there is almost triple the amount of derivatives
as there was over a year ago at $1.4 quadrillion! The money powers are less
in control every day and that is why the attack on gold and silver has been
so vicious. They have been unsuccessful from stopping other countries and
investors from pulling all the available gold and silver off the market and
these are the holders that will have the economic power down the road. You
can bet when all the leverage unwinding ends, the financial companies that were
successful in engineering the selloff will be the new big owners of the
stocks and metals that are being thrown away for less money than the
companies have in the bank. Firms such as Goldman have vital information
since they are among the largest prime brokers. They know how leveraged
specific investors are and can use that info against them. One major prime
broker raised their in-house margin requirements on mining stocks from 50% to
100% “because they are so volatile”. Obviously this resulted in
more forced selling. They always pull out every trick in their bag to make
sellers for what they want to buy. With the information they have in hand is
it any wonder that the market can go up 900 points one day and then down 800
the next? They are gaming positions that should be privileged information.
Ex-Goldman employees entrenched in key Government positions in many countries
help the money powers influence policies such as continually attacking the
gold and silver markets. In July, two US banks sold paper silver in a
very short period of time equal to 1/4th of an entire year’s production
driving the silver price from over $19 to around $12 in a few weeks time.
The Government and their agents have spent
the last decade propping up zombie companies such as GM and the banks, and
suppressing free market movements in gold and silver. They continue to add to
the problem with the massive bailouts and money creation that is the key
factor driving gold and silver up which is what they so foolishly are trying
to stop. As derivatives positions blow up, the dollar gets a boost as failing
counterparties try to raise dollars to pay off their failed bets. A very huge
portion of the $1.4 quadrillion in derivatives is positioned directly against
what the natural pull of a free market that would cause asset prices to move
to. More specifically, interest rates on bonds would be very much higher,
gold and silver would be very much higher, debt of most major corporations
would be unsalable except at dramatically higher interest rates, etc. etc.
The key problem of the financial system is
too much debt and leverage. All solutions so far to the key problem involve
more debt and leverage. That is why derivatives have almost tripled since
this crisis began over a year ago and we are no closer to a solution. Gold
and silver are even better values now than ever. The $700 billion bailout
which we were vehemently opposed to went to the banks and to furthering the
goals of the financial powers which is not in your interest. Not a nickel of
it has gone toward extending more credit to consumers, nor will be, you have
been lied to. Guaranteed, some of it has gone to holding back the gold and
silver price and from exposing the reality of the situation. Write your
Congressman and complain, let them know you see what is going on. We do.
There are many money managers that clearly
see what is going on and they have taken the appropriate steps to address the
current scene. Managers such as Jim Puplava, Eric Sprott, John Embry, John Hathaway and many others have
taken the correct steps. Their performance has not reflected that they are
the correct steps but that will come in time unless we let the financial
powers take from our very hands the investments that will protect us from
their actions. No leverage whatsoever should be used in this environment. The
only way you can have these stocks taken from you is if you are using
borrowed money. Gold stocks, silver stocks, and uranium stocks have
fundamentals so strong that they can not be hidden despite the unprecedented
attempts to make them look bad. This is why silver trades as much as 100%
above the phony paper markets. You should be increasing your exposure to
these assets not withdrawing from them. The upside is absolutely
unprecedented. Gold and silver stocks have never been cheaper relative to
gold and silver than they are right now. If you are overexposed, cut back, do
not withdraw completely. Do you own physical gold and silver? It is
absolutely essential and can still be sold at close to all time highs despite
the bogus paper markets. In this investment climate gold and silver should
not only be a permanent part of your portfolio no matter how the investments
respond in the turmoil, it should be an increasing portion. Physical metal is
very difficult to acquire if you have waited to this point so do not give up
on your gold and silver stocks. They have direct possession even if it is
still safely below the ground. Put the vast majority of your portfolio in
cash generating gold and silver companies, there are many which trade below
three times cash flow and even one times cash flow. Many, if not most, have
more money in the bank than their entire market capitalization. Panic selling
initiated by the Paulsen and Bernanke white wash did little to calm the nerves
of the market place. It did shut off the escape hatch of gold and silver that
will benefit like no other area when the money printing accelerates and
escapes into the real economy. At that point, and we believe it is very soon,
those that have sheltered themselves in cash and bonds will be annihilated
and will be too afraid to move to the safety of gold and silver after what
was just perpetrated. This is truly criminal activity, be aware of it and
stay sheltered with an appropriate percentage of your assets.
The capital that has been cut off from mining
will most definitely create an upward explosion in the price of gold and
silver like nothing we have ever witnessed. Demand for gold and silver
continues to mount, particularly on the investment side while supply is in
the early stages of absolutely plummeting. Gold production was down 6% in the
first half of the year and will be much worse in the second half. Some
companies we spoke to are moving to slow their production because they feel
the Comex prices are just ridiculous. We agree and are glad to hear they
hesitate to throw away scarce product for an inadequate price. Silver
production will likely skid sharply if the situation continues. The zinc
price has dropped all the way back to .48 while industry breakeven is closer
to the $1 mark. 32% of silver production comes to market as a byproduct of zinc and another huge portion over 25% comes
as a byproduct of copper. The stage has been set
for the most remarkable and likely rapid rebound of all time. The bull market
in gold and silver and all commodities was catalyzed by a very long period of
underinvestment and lack of capital. That situation is clearly being
exacerbated by the events of the past five months which will cause an even
more explosive upside than before. The supply side will be affected much
quicker and deeper than any falloff in demand due to weak world economies. One
can not just decide they all of a sudden would like to go find a new gold or
silver mine or uranium field. Physical commodities must be priced above their
production cost or the supply will simply dry up which is exactly what we are
seeing in the gold and silver markets. Intervention can last for quite awhile
but eventually the artificial prices result in ever bigger shortages and
upward pressure on prices. People know that gold and silver should really be
doing better now with all we have seen transpire this year so some people are
using that as a justification not to buy it. As John Embry has said,
“that is exactly the mindset the guys driving the price down are trying
to create.” You can be sure when they can no longer drive it down they
will be the big owners when it all bottoms.
Stocks in these sectors are trading at
ridiculously low valuations based on earnings, cash flow, reserve values, and
even just cash alone in the bank. This is clearly not a time to sell these
companies yet investors have continued to do so forcing fund managers to sell
stocks trading at a fraction of their real value to raise cash. As
overleveraged hedge funds and investors sell investments and buy back dollars
to pay off debt, the artificial strength of the dollar will persist until the
debt is retired. Yes, believe it or not, there is global demand for the US
dollar at a time when the country is fundamentally bankrupt which few yet
understand in the US.
This has all been set in motion by Paulsen and Bernanke with their scheme in
July to twist the arms of big institutional investors to sell their commodity
investments. The companies continue to report good earnings results even with
the unnaturally low gold and silver prices. It is impossible to know exactly
when the selling will stop since investors want out of the strongest
performing industries remaining in the US. If they would only take a
hard look at what they are selling the selling will stop but all things must
run their course. The sad part is just as investors run to cash we are ever
closer to seeing just how unsafe cash is. We have been wary of banks all year
to the point of not allowing much cash to sit in them. Our worst fears
regarding how unsound banks are has proven out. So far damage to depositors
has been minimal as bigger banks that are in even worse shape have rescued
bankrupt banks like Washington Mutual and Wachovia. Gold and silver continue
to improve fundamentally with: wars on two fronts; huge, unprecedented and
growing budget and trade deficits; ongoing financial crises with many more
banks to go under; a recession that will uncover more financial problems; a
flawed national energy policy; and improving supply and demand fundamentals. In
addition, the monetary base is up over 50% over the past few months while
other money printing to fund bailouts has even exceeded that. The Fed has
kept its word that it is ready, willing, and able to print money in any
quantity necessary to back these bailouts of the financial powers.
The uranium price moved down in October as
hedge funds and financial players that were hoarding uranium metal were
forced to sell in the deleveraging process. I was never a big fan of hoarding
metal that already is experiencing shortages for its basic applications. Good
for the electric utilities that got some material at a bargain price that
they will find ever harder to acquire in the years ahead. The price has started
to move back up over the past few weeks.
When you look at the actions of our Treasury
Secretary and the Fed you have to question either their sanity or honesty, it
is one or the other. The Government’s borrowing needs for next year are
already expected to double to over $2 trillion. Contrast the recent bailout
plan initiated by China
with ours. The China
plan is focused on infrastructure with such things as railways and public
housing that will require ongoing demand for commodities with a real, lasting
product that can be used many years into the future. The US plan is focused on funneling
$100’s of billions of dollars and eventually trillions to failed
financial firms as well as uncompetitive industries the most glaring of which
is the US
auto industry. These are the companies that caused the problems we have now. The
Administrators running the bailout were complicit in this entire mess. AIG
was just handed another $40 billion now raising that bailout for one firm to
over $150 billion. AIG has been rumored to be the
biggest short seller of gold and silver. Does that seem like a worthy bailout
to you? Contact your Congressman! There should be no more bailout money funneled to the bankrupt Wall Street banks and brokers. American
Express was just converted to a bank so it could too get on the gravy train. Enough!
Let the chips fall where they may so we can start over. The current plan is
just taking more from you and me in favor of the
financial elites in power. The sooner it stops the better. Make no mistake,
the market and the media can be moved at will with all of the financial
weapons we have handed over. Congressmen were threatened with Martial Law if
they did not cede all the requested powers along with the $700 billion. Protect
yourself with t-bills and gold to the greatest extent possible. Be very wary
of cash held by banks or any counterparty.
If you were a businessman and you bought a
company that was generating cash equal to what you paid for the whole company
or even 1/3 of what you paid for the whole company would you be upset and
want to sell it? That is, in effect, what you are doing if you sell these
companies that are trading at these very low valuations. It makes no sense
but it is happening.
Richard J. Greene
Thundercapital.com
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