"We expect the Fed to announce QE3 as soon as late this summer. Until it does so, however, we think stock market investors will be in for a rough ride." - Charles Biderman, Trim Tabs Research
HOUSTON - Judging by our mailbox just lately, people are pretty nervous and worried about the markets, about their future, about the upcoming elections (even though they are not until the eleventh month of next year). They worry about the US currency (indeed all fiat paper currencies), about government spending too much, about Fed or government interference, about our loss of freedom, about another plunge into a 1930s-style depression, and so on. Our readers and especially our Vulture Members are sharp cookies by and large, but they are human and it is part of the human condition to worry - apparently.
Yes, judging by the mail the situation seems dire and ominous to many. We don't have the numbers, but we would wager that the number of times the words "collapse," "panic," "recession," and "double dip" are being used today by pundits is near a high point.
We suppose this could be one of those times where an actual lethal tipping point occurs, but if it is it will be the first time a deadly tipping point has arrived without tripping our most trusted "canary" indicators. In other words, this current spate of investor nervousness looks a lot like the ones we have seen in the past, and all but one of those turned out to be tremendous "buying ops" for our beloved small resource companies.
Ah, but the one time it wasn't a good buying op (August of 2008) was indeed enough to cause a great deal of worry today - and the memory of that panic event is still fresh enough three years later to be more than a small influence.
On balance, however, we'd have to say, judging by the level of anxiety and the indicators we trust, we're pretty much on schedule (if not actually somewhat advanced) for this Vulture Bargain Hunting Season.
More in a moment, but first, here is this week's closing table and comments.
Table comments: Negative liquidity environment continues for small resource companies. Gold much stronger than silver - always a worrisome signal short term. Higher anxiety weighs on silver more than gold. Note, however that neither gold nor silver cut a new weekly low. Hi-lo spreads contracting and volatility is too. ICE commercials add to net shorts on the greenback even though it was down big. Miners weaker across the board, but not offensively so. Negative money flow for most metal ETFs, but not a lot and IAU actually added gold. The gold/silver ratio ups to a 42 handle, but still well below our upside target of 45 or 46 ounces to one ounce gold. A big jump in the gold commercial net short positions (LCNS), but we think we saw significant short covering late week. We'll see.
Back to the introduction...
Change is Slow, but Coming
We love buying "stuff" at deep discounts here at Got Gold Report. Just lately we have had the opportunity, we think, to take advantage of heavily discounted issues we see promise in - if the world manages to hold it together. And, if the conversation going on now in Washington manages to turn back the clock on the audacious attempt by the current administration to force our country hard-left and into an even more socialist, over-regulated, giant government-control monster (even worse than we already had).
The central-planning-loving elitist-socialists have scored big with Obamacare, Dodd-Frank, and other hugely disturbing, European-style blocks of government concrete now chained around swimming American's necks, but we think they won't be able to keep all of it. We simply cannot afford it. People are slowly, but surely, coming to the realization that government cannot and should not do everything it is trying to do, while sucking oceans of money out of the economy (and all of us) or borrowing and printing like there's no tomorrow to pay for all of it.
People are inching toward the idea that we went way, way too far down the road of socialism, which is the idea that says government knows best, and too far away from the American ideals of individual responsibility and liberty. That's what the 2010 elections "said" more or less. People are waking up to the notion that debt is an evil, four-letter word and government debt measured in trillions is hideously, doubly evil, because it turns responsible taxpaying citizens into indebted serfs.
Notice, please, that just recently we are seeing a lot more talk in Washington using the phrase "out of control government spending;" more references about choking off the growth of government by cutting off the funding of it. Notice the debate is changing right before our eyes - "Starve the Beast" may become the new popular rally cry. (It's better than "Liberty or Death," which we got started with in the 1770s thanks to a great patriot named Patrick Henry, and which became the rally cry of Texas Independence in the 1830s. ... And it's about dang time the debate changed.) As painful and dire as these notions feel and sound, it is a necessary part of the process that will, we can all hope, send the pendulum moving back in the right direction once again.
The political pendulum has definitely paused high-left and is beginning its arc back toward the middle after being "goosed" too far left by opportunistic Chicago-style, "never-let-a-crisis-go-to-waste" politics in Washington. We just hope that this change in the debate hasn't come too late to make a difference in the outcome. The jury is out on that as of now.
At any rate, right now, in April, May and now June of 2011, people have gone from complacent to worried again, heightened by a well-telegraphed event just ahead - the scheduled "end of QE-2" at the end of this month. It's as good a sell-down trigger as any and perhaps better than most, and that, friends and fellow Vultures is kind of what we are and have been counting on.
Sooner or later people will figure out that the "end of QE-2" isn't really the end of government stimulus. They may not realize, as Omnis' Mr. Jim Rickards says, the Fed's $2.7 trillion balance sheet will become a kind of "perpetual QE" as they continuously "reinvest" the incoming principal and interest payments back into the system, but people might notice that the dire effects of the "end of stimulus" just don't show up right away. (A $2.7 trillion war chest is a formidable amount of "stroke." Isn't $2.7 trillion 2,700 billion dollars?)
Oh, the effects may show up, like in the bond market yield curve, but probably not like flipping a switch on June 30. Oddly enough, most of the indicators we rely on as our coal mine canaries to signal us of impending Big Trouble are relatively tame. At least as of this past week we cannot point to more than a couple of them and say, "Lookout! Here it comes!" Instead, we are left scratching our head and wondering why everyone is so bloody anxious and sending us all that mail.
Sooner or later, though, people tire of dire and get down to the business of business again. At least they always have. If this time is different, the indicators haven't caught on - at least not yet and not fully.
Before moving into the "meat" of this week's full Got Gold Report, we thought we would share something from our journal this week, just below.
On the Price of Gold and Fiat Paper
We have in the past said that any attempt to predict what price, in US dollars, to expect at the top of this bull market is arrogant and foolish. Our reasoning is that predicting any price for gold by definition assumes that the US dollar will be a survivor of the fiat currency leper colony. What people need to understand is that this time there is a very real possibility that all under-backed fiat paper currencies will be reduced, as Voltaire once said in the 18th century, to their intrinsic value - zero.
The dollar has already lost about 97% of its 1913 purchasing power, but that is in the past. The "3%" of the purchasing power remaining is 100% today. It is what happens from here that counts to us and our families, is it not?
Notwithstanding our contention that we are and have been in a slow-motion collapse of currency confidence, Vultures that are also US citizens consider for a moment what might happen if there is a really sudden climax crisis of confidence in paper Federal Reserve Notes (backed by US debt and little else) - the scraps of paper and ink we grew up with and most still take for granted as "money." If there is a sudden hyper-collapse of confidence, then all-too-abruptly the purchasing power of all the accumulated wealth one holds in bank accounts, or in long-term notes, annuities, and income streams of most any kind ... the purchasing power of the national currency will evaporate like so much ether.
Like a stock hammered by really bad, terminal news (think Enron, Worldcom or AIG), once confidence is shattered, so is the value people trust it to carry, because so much of the "value" of paper instruments is collective confidence in it. No government edict can restore trust in currencies once it is lost. Just ask the unfortunate people of Zimbabwe about that one.
People of great wealth are coming to grips with that notion and are searching for somewhere, anywhere they can store wealth that won't be so affected in a full-blown disorderly collapse of currency confidence. That is why "stuff," gold, silver, some real estate (but not all of it) will do relativelywell as currencies lose value. Some, but not all companies will likely do well too, on a relative basis.
These fears are legitimate today, but probably not imminent. Not yet. Not without a tipping point catalyst strong enough to rock ballgame-watching Joe Sixpack off the couch and Mary Sixpack away from Dancing with the Stars. That gut-wrenching fear of currency collapse is why wealth all over the world is naturally gravitating to the only currency the world cannot print - precious metals.
We plan to have more along those lines in future reports, but for now, let's see what some of the indicators are whispering to us this week of summer high anxiety, and a little of what we are doing about it.
Meanwhile there are some pretty bullish signals coming at us for precious metals, which we will get to in a moment for subscribers. We aren't the only ones noticing the bullish signals. Even Barrons sent out a note this past week about the sharply dropping registered inventory of silver at the Comex, for example. Of course we had already posted something about that in our VultureInReview section earlier this week.
Got Gold Report
First things first, the Got Gold Report - the full report - is published biweekly at least 24 times per year. Between reports we communicate more regularly on the GGR web log, which is always free and open to the public, or in our COT Flash reports and Vulture Bargain Hunter reports reserved exclusively for subscribers. COT Flash reports appear on off weeks for the Got Gold Report when there are what we consider important changes in the commitments of traders reports which cannot wait until the next full report. Vulture Bargain offerings appear ad hoc as there are developments we feel merit comment for and in the resource company issues we track closely.
Our aim is to briefly summarize our positioning for the gold and silver markets, and also to highlight a few of the dozens of indicators, ratios and graphs we keep in constant touch with. Vultures, after logging in, please see the commentary in our numerous technical charts located in their own section of the password-protected subscriber pages. We update most of the Got Gold Report linked charts each week, even the weekends when we don't publish the full report. Changes to the linked charts are almost always completed by 6:00 pm ET on Sunday evening (except when Monday is a holiday) and occasionally during the week as events unfold.
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A land developer, professional numismatist, self-taught bullion trader and investor since 1980, Gene Arensberg analyzes technical and fundamental developments in the precious metals markets. In 2000 Gene started sharing his own market research with fellow traders and fund managers. Those email reports evolved into his popular Got Gold Report, a biweekly look at important indicators for gold and silver published on the web. Gene's more in-depth market reports, insights and trading ideas are available at www.GotGoldReport.com.