Curried Wealth Building
Finding an Edge

If you want help with your finances, give me a call at 703-791-3243.
April 10, 2010
Issue 91  -  An Edge Has Been Found
 

If you look at the top of the web page here you will see my tag line is "finding an edge."  An edge in investing is very hard to find.  There are millions of investors looking for them and if too many find a particular edge, it will quickly vanish as they pour into the supposed advantageous investment.  There is an excellent book called the Money Game.  It was written in the 1970's and it is very harsh and sarcastic look at Wall Street.  The author writes about the idea of an edge.  "If you don't know what your edge is, you don't have one," is the one line I remember from the book.  Very few people have EVER had an edge investing. 
 
I've had two.  One was with a Covad, an internet DSL supplier, and the other was a natural gas company.  Covad had a private chat room that I had access to where there were investors that had huge positions in the company and lots of knowledge about internal workings of the business would post information.  The second was a company called Canadian Southern Petroleum.  I had a subscription to a service where the writer had detailed knowledge of the company and was planning a law suit for stock manipulation.
 
I made a good deal of money with both of these, although with Covad I should have sold sooner.  Just because you have an edge doesn't mean you will make money, you still have to determine when to buy and sell.  Canadian Southern was bought out at large premium after my purchase.
 
So what is this edge?  It involves my favorite investments:  gold and silver.  What is different you might ask?  There have been a string of events that add up to what I think, is an incredible edge.  Let's jump right into it.  I've already discussed part of this the last couple of weeks and this articles summarizes it nicely:
 
 
Strange Reactions To Precious Metals
Manipulation Evidence Provided To CFTC
By Patrick A. Heller on April 7th, 2010

At the March 25th Commodity Futures Trading Commission (CFTC) hearings on the possibility of imposing trading limits on gold and silver futures and options contracts, three speakers were able to enter into the record detailed information about the manipulation of gold and silver prices.
Bill Murphy, the chairman of the Gold Anti-Trust Action Committee (GATA), listed background information on multi-year price suppression practices.  In response to a follow-up question from CFTC commissioner Bart Chilton for a specific instance of manipulation, Murphy described the exchange of emails and telephone calls between former Goldman Sachs (London office) silver market trader Andrew Maguire and the CFTC enforcement division.  Maguire blew the whistle on the price suppression activities of the JPMorgan Chase silver traders in London that were so blatant that these traders even bragged about it.
Murphy specifically referred to Maguire’s emails to the CFTC Enforcement Division on February 3, 2010 which alerted them that JPMorgan Chase had given a signal that it would be knocking down the price of silver right after the Bureau of Labor Statistics released its monthly non-farm employment data at 8:30 AM on February 5.  He also revealed that Maguire had sent emails to them as this very manipulation was in progress on February 5.
Adrian Douglas is an analyst of oil, gold, silver, and copper markets who also is on the board of directors of GATA.  At the CFTC hearings, he was able to discuss how the London Bullion Market Association, the world’s largest gold trading venue that supposedly only trades contracts for physical delivery of gold, had actually turned into an almost completely paper-gold market, with less than one ounce of gold in inventory for every 100 ounces of gold theoretically due for physical delivery on that exchange.
This information was devastating to the claim by many analysts and those in the mainstream financial press that the gold and silver market prices are not manipulated by the US government and its trading partners.  Ordinarily, you would think such significant revelations would get major news coverage.
So what actually happened?
Before the hearings commenced, Bill Murphy had lined up some post-hearing interviews with multiple US financial media including, among others, Reuters and (I think) Bloomberg.  Every one of his US interviews was suddenly canceled.
Within 24 hours of being identified as a whistle-blower, the car in which Andrew Maguire and his wife were riding was struck by a hit-and-run driver.  The Maguires were briefly hospitalized, but survived.
On March 30, Maguire and Douglas were interviewed for 40 minutes on King World News to further discuss the market manipulations brought up at the CFTC hearings.  The next day, King World News broadcast a half hour interview on the same subjects with Murphy, Douglas, and another GATA director named Chris Powell.  On March 31, from 8-10 PM, King World News’s website was shut down with a sophisticated “distributed denial of service” attack that brought down the entire grid of the host company.
Another website that posted information about the market manipulation testimony at the CFTC hearings also went down for a few hours because of a distributed denial of service attack.  Again the website hosting company, which includes Sony and Toyota among its other clients, was surprised that the attack could overwhelm its high level of defenses.
In the twelve days since this evidence was presented at the CFTC hearings, there have been no statements of denial coming from JPMorgan Chase, Goldman Sachs, or any US government agency.  The lack of coverage by mainstream US financial media is notable by its absence.
Outside of the US, this evidence has received extensive coverage.  Murphy and Maguire have been interviewed for broadcasts in many European nations, including Russia.
I think we are already seeing market fallout from the information presented at the CFTC hearings.  The price of silver is up roughly 8% since then.  There are rumors that JPMorgan Chase may be buying back some of its silver short positions, which would tend to cause this rise.  It has even been hinted that HSBC may be closing out some of its gold short positions, which may be a factor in the recent rise in that price.
Another possible fallout is that the interest rate on 10-year Treasury debt has been increasing.  Yesterday it closed at 4%, the highest level in nine months.  This is my trigger point to indicate lack of foreign confidence in the value of the US dollar, which could spark a near term decline.  Should the dollar fall, gold and silver will almost certainly rise—perhaps by a lot in a short time.  It looks like the potential for a falling dollar is so much of a concern at high levels in the US government that even President Obama yesterday went out of his way to urge the Chinese to allow its yuan currency to float (i.e. rise) to a free market rate.
Most Americans are in the dark about some important issues affecting the values of gold, silver, and the US dollar.  I mourn for them.  By the end of April, I expect that will wish they could have read the news that is widely available outside the US.
 
Yesterday, Jeffrey Christian, a metals analyst, and former Goldman Sachs employee, published a blistering report accusing GATA of lying and misleading people.  The timing of this was curious as the price of gold and silver have gone straight up since the CFTC hearings and he DIDN'T address any of the actual issues from the hearings.  I find this very telling and shows, at least to me, some desperation.  In fact the title of the report is a very sophomoric "GATA You Lie!"  This is a good tactic to employee when someone is making inroads into exposing your corrupt game.  Attack the messenger.  Don't address any of the real issues, just discredit the opponent.  That GATA has been making the claims that Christian goes after for the last ten years, and he chooses now to attack, is a very big tell to me.
 
Now for the big new development.  King World News is a web site run by an independent investor who happens to have high level contacts.  He had an interview with the only private investor that gave testimony at the CFTC hearings.  It was with a guy named Orgen and his son.  They related the story of calling the Bank of Nova Scotia about seeing their gold and silver which was being housed there.  They were told they couldn't see it.  Upon further pressure, the bank told them that to see it they would have pay more storage and insurance fees.  Mind you, they were ALREADY paying for these items.  After not taking no for an answer, it took 3 months to get their items to the bank.  Here is summary of the story from ZeroHedge:
 

The Latest Gold Fraud Bombshell: Canada's Only Bullion Bank Gold Vault Is Practically Empty

Submitted by Tyler Durden on 04/07/2010 10:30 -0500

Continuing on the trail of exposing what is rapidly becoming one of the largest frauds in commodity markets history is the most recent interview by Eric King with GATA's Adrian Douglas, Harvey Orgen (who recently testified before the CFTC hearing) and his son, Lenny, in which the two discuss their visit to the only bullion bank vault in Canada, that of ScotiaMocatta, located at 40 King Street West in Toronto, and find the vault is practically empty. This is a relevant segue to a class action lawsuit filed against Morgan Stanley, which was settled out of court, in which it was alleged that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store, yet even despite charging storage fees was not in actual possession of the bullion. It appears that this kind of lack of physical holdings by all who claim to have gold in storage, is pervasive as the actual gold globally is held primarily in paper or electronic form. Lenny Organ who was the person to enter the vault of ScotiaMocatta, says "What shocked me was how little gold and silver they actually had." Lenny describes exactly how much (or little as the case may be) silver was available - roughly 60,000 ounces. As for gold - 210 400 oz bars, 4,000 maples, 500 eagles, 10 kilo bars, 10 one kilogram pieces of gold nugget form, which Adrian Douglas calculates as being $100 million worth, which is just one tenth of what the Royal Mint of Canada sold in 2008, or over $1 billion worth of gold. As Orgen concludes: "The game ends when the people who own all these paper obligations say enough and take physical delivery, and that's when the mess will occur."
 
This interview can be heard in full at kingworldnews.com.  Look for Harvey Orgen in the titles.
 
 
So the largest bullion bank in Canada has about a million dollars of silver and 100 million dollars of gold?  That is virtually nothing.  To put that into perspective, the United States is going to spend 100 million dollars EVERY 15 minutes in 2010.  Think about that.  By the time you watch a sitcom, the United States has spent enough money to buy all the gold and silver in the largest bullion bank in Canada twice.
 
These banks are practicing fractional reserve banking.  They know that only a small fraction of people will ever want their metal, so they can lend/sell again the large bulk of their "reserves".  This is clearly immoral and illegal.  If you tell me that you are storing something for me and I am paying you for such, I think most people would assume that the metal is THERE.  Not so.  In fact, I'd say that most of the banks doing this around the world, and there aren't all that many, are just as empty.  In fact, the lawsuit briefly mentioned above proved that this is happening.  Here is a report from GATA in 2007:
 
 Morgan Stanley Settles Metals Lawsuit
By REUTERS
Published: June 13, 2007
Morgan Stanley will pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, according to a court filing.
The proposed settlement, which is subject to approval by the Federal District Court in Manhattan, includes $1.5 million in cash and other benefits valued at about $2.9 million, according to a court filing on Monday.
The suit, filed in August 2005, asserted that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store.
But Morgan Stanley either made no investment specifically on behalf of those clients, or made entirely different investments of lesser value and security, according to the complaint.
 
So here is one of the largest banks that was lying to and conning it's customers.  They actually didn't even buy some of the metal that they received monies for.  This is outrageous and now from this new Nova Scotia report, it seems that this is the norm.  THEY DON'T HAVE THE METAL!
 
Now let me ask what you would do if read this and you were "storing" gold or silver in a bank?  Yeah, that's right, you'd be checking it out.  I'd want mine back.  If they only have a small portion of what they say they have, this would cause a parabolic rise in the price of the metals.  Here is another straw for the camel from GATA:
 
Rob Kirby of kirbyanalytics.com has noted that some big trader has called Jeremy Charles bluff. In the CFTC meeting Mr. Charles (Global Head of PM Trading HSBC) tried a cheap trick of saying that there was plenty of metal around and HSBC could fill a million ozs order for gold in a day. If he wanted to be convincing he should have said they have one oz of gold bullion for every oz they sell…but we know that would have been a lie because they have approximately one oz of bullion for every 100 ozs they sell. Kirby reports that a trader put in an order for 1 million ozs with HSBC the following day and it was not filled by three days later and apparently can not be filled. The music is about to stop and there will be a mad grab for available “chairs”!
Cheers
Adrian
 
 
This is the game.  Pontificate, huff and puff, and call people "conspiracy" theorists, that's the strategy of the people perpetrating this fraud.  Well, if the price of the metals is any indication, the game might be ending.  The time might be very close.  Read this story:
 

World Gold, a gold trading floor in Ho Chi Minh City, officially closed on March 31


The recent closure of all gold trading floors in Vietnam will not have a great impact on commercial banks, but for other struggling companies, it means new business paths or a complete shutdown.
Most gold trading floors operated by commercial banks said they would simply shut down the business completely, and not offer any other service to investors.
Nguyen Duc Thai Han, director of Asia Commercial Bank’s gold exchange, said the company does not have any immediate plan to launch a new alternative investment service.
ACB opened the first gold trading floor in Vietnam in May 2007. At first the floor had just nine traders - large banks and gold trading companies.
The bank then expanded its service to individual investors. The move boosted trading volumes sharply and encouraged the establishment of more trading floors.
Investors preferred trading gold at the exchanges since they only needed to pay around 7 percent of the purchase price and could leverage themselves easily using loans.
The State Bank of Vietnam on December 31 announced a decision to close the 20 gold exchanges in the country by the end of March. It said the closure was necessary to eliminate risks posed to the national financial system.
 
Read the line in red.  Now how in the world could operating a gold trading exchange pose a risk to the financial system?  Unless the whole gold market is a fraud.   Unless there is far less gold than is being reported.  Because if there is as little actual gold as I believe, a gold rush like you've never seen is about to begin.  Now let's move onto a chart that PROVES manipulation.   This was just made by GATA contributor:
 
 
 
What you see here is a chart showing a cumulative total of price moves in gold at each time of the day.  This chart took a long time to construct.  If the gold market is truly free and fair, a chart like this should be fairly random.  Notice the first red arrow.  There is NO way that a free market would have waterfall drop like that at one particular time of the day.  It's almost a straight drop down when New York trading begins.  Oh, by the way, that is where the Fed is centered. 
 
Other smaller things are clicking in which I think show that the scam is gaining more and more exposure:
 
Gold hits record high for British investors
The price of gold has risen to an all-time high in sterling and euro terms.
 
The price is not that far off all-time highs in dollar terms either.  Even CNBC is having people who believe in the trend: (from GATA)
 
Gold and silver look like they are going to be big problems for L Summers. Byron Wein, highly visible senior advisor at Blackrock, was no help to Summers today. He was on CNBC saying all investors should have a 5% gold investment in their portfolios.
 
 
If people actually bought 5% of their net worth in gold, the price would be a moon shot.  I think it's coming.  All of these pieces together form an edge that you NEED to take advantage of.  Don't put it off any longer.  I fear the time is limited before the real fireworks happen.  Call me if you want help 703-791-6066.
 
My largest holding Gold Resources Corp. (GORO) made an all-time high this week and I believe their production announcement is imminent.  I believe it still safe to buy it up to $14.  If it gets over $14 I would probably wait for a pull back before buying.  GORO also had a recommendation by a newsletter writer:  (via GATA)
 
Today is the first day Clive Maund (wwwclivemaundcom) has mentioned GORO -  "Gold Resource Corp has been in a consolidation pattern since the start of the year, but has risen significantly in recent days as it limbers up for what promises to be another upleg. GORO's fundamentals are believed to be excellent and there is no overhead resistance once it clears the January highs, which it is very close to doing. Regarded as a strong buy on any short term weakness." Clive's is an excellent service following PM's,oil and gas and the general markets.
 
Clive Maund charges $600 a year and is closely followed.  This definitely had some impact on the price.  Bottom line is that now is the time to make a move and get your gold in hand.  I think you'll be glad you did.  I'll close this week with a video I found a few years ago.  Believe it or not, a guy kicks himself in the head on a dance show.  Must see.  Have a great week!