Curried Wealth Building
Finding an Edge

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December 11, 2010
Issue 126  -  In a Bull Market,
Everyone's a Genius
 
 
I don't claim to be smarter than other investors but I try to do things different.  Different is good.  If you do what everyone else is doing, you, by definition, will achieve, at best, average results.  In fact, most don't even do that well, as they overtrade and overthink.
 
We are in a commodity bull market and this will continue for at least 3-4 more years.  This means that all you have to do is play the trend.  Get your positions and hold on tight.  That money should form your core position.  Once that is established, 10 percent can be used for speculation.  I have done very well in picking stocks in this bull market but that doesn't mean I'm a genius.  It means I have identified the trend and bought stocks that have benefited from the trend.  Remember 1999?  Everyone was a technology stock genius.  10 baggers very common.  What eventually happened was a crash and I expect the same from the commodity trend.  We are no where near that point though.
 
My favorite part of the trend has been gold and silver.  So are these two metals reaching a peak in price?  Some are arguing this and I disagree.  So do the Chinese:
 

Gold Demand: ‘Huge Buying from China’

By Carolyn Cui

The Journal’s Carolyn Cui and Dow Jones’ Chris Oliver report:

Bloomberg News

Gold’s record rally has been attributed to everything from worries about inflation, the dollar and the emergence of exchange-traded funds. One big factor many may have missed: huge buying from China.

Data cited Thursday by China’s state-run Xinhua news agency showed that China imported 209.7 metric tons of gold in the first 10 months of the year, a fivefold increase compared with the same period last year.

That surpassed purchases made by ETFs and surprised analysts, who until now had no clear insight into the size of China’s buying.

Gold demand in general has soared globally this year, as a result of the sovereign-debt crisis in Europe and the Federal Reserve’s new round of bond buying. Gold prices were pushed up to an all-time high of $1,409.80 a troy ounce on Nov. 9. Thursday, gold settled $1.20 higher, or 0.1%, to $1,388.50, up 27% for the year.

“Everybody in the gold market knew there was a surge in investment demand, but they didn’t know it was China,” said Jeff Christian, managing director at CPM Group.

The Chinese have been snapping up commodities and commodity companies for years.  They know what's coming.  Our leaders seem not to know.  We keep printing money while Rome burns.  The market for gold and silver is tightening up and I believe that the powers that be are controlling the price.  One of the ways they do this by lying.  Banks "store" your gold for a fee.  Or do they:
 

Turk - Swiss Bank Client Battles Over 2 Months For His Silver

Since King World News broke the news with Jim Rickards that a Swiss bank client was refused his $40 million of gold and had to threaten the bank to get it, the story has been going viral.  KWN interviewed James Turk out of London today to get his comments on the situation.  Turk responded by citing another example, “I found that Jim Rickards comments about the individual who had difficulty getting $40 million of gold out of the Swiss bank where he had it stored very interesting.  I could tell you several stories of similar experiences.”

Turk continues:

“Let me just cite one example that is ongoing.  This individual has been storing with a Swiss bank twenty bars (1,000 ounce bars) of silver which has a market value today of just over $550,000.  So, it’s not only large transactions that are affected, but small ones too. 

When I last emailed this individual a couple of weeks ago, he was still trying to get his silver from this Swiss bank.  This has been going on for over two months, and again we are only talking about 20,000 ounces of silver.  This may seem unimaginable to some people, but I had told this individual in September when he contacted me that I had seen this problem repeatedly with other people. 

He was quite confident that he wouldn’t have a problem getting his silver because he had been paying storage fees on it since buying it in the late 1990’s.  The Swiss bank is insisting that he take cash, but he is demanding his silver which is supposed to be sitting in the bank’s vault be delivered to him.  As I said before Eric, I know of other examples like this one.

Circling back around to the Jim Rickards interview, he ended with some very good advice, with which I wholeheartedly agree.  Make sure your gold and silver are stored outside of the banking system.” 

With regards to gold and silver specifically Turk stated, “It is important for people to keep their eye on the big picture and not be distracted by short-term volatility in the price of gold and silver.   The long-term trend for both precious metals is still pointing higher.”

What in the world is going on with some of these banks that are supposed to be storing their customers gold and silver?  Have they leased it out to another entity?  Have they sold their customers precious metals and left an IOU in the vault while continuing to charge custodial fees?  King World News may have only scratched the surface of what could turn out to be a fraud inside of some of these banks.
 
 
This is a fraud of epic proportions.  How many people think they "own" this gold and silver?  Obviously they don't have it, so where is it?  If I pay you to store something and then I come to get it, how in the world could it take any longer than a couple days to retrieve it?  The ton of gold mentioned above actually took 1 month to retrieve.  This is beyond ludicrous.  This gold and silver is being sold over and over.  This is dampening the demand and keeping a lid on the price.  This will blow up some day.  Make sure you have some gold and silver to protect yourself that day. 
 
 The CFTC, which oversees the commodity markets, has been dragging their feet on implementing new position limits in the markets.  In fact, Bart Chilton, the commissioner, and only apparent opponent of these oversized positions, which obviously are red flags, had this to say recently:
 

Speculation and Position Limits

In addition to OTC markets, there is another key provision of real significance required by the new law.  In the run-up to 2008, we saw an enormous shift in speculative money coming into futures markets.  Over a several year period, roughly $200 billion in speculative money came into these markets.  Crude oil reached $147.27 a barrel; gasoline topped $4 a gallon.  Wheat, which trades at roughly $8 a bushel these days, was trading at $24.  It went on and on, and then it all crashed.

I’m not suggesting a direct correlation between the inflow of speculative money or positions and the price volatility, by any means.  Many of us learned, however, that while there may not be such a thing as too much speculative money, that same money might be too concentrated.  We saw very large concentrations of trader positions in 2008.  That has continued.  Since then, we saw one trader hold more than 20 percent of the crude oil market.  Even earlier this year, one trader held over 40 percent of the silver market.

While I’m not suggesting speculators drove prices in 2008 or today, I know they had an impact then and believe they are having some impact today.  You don’t have to take it from me though.  Economists at Oxford, Princeton and Rice universities all document that speculators have had an impact on prices.

Congress got it, and that is why the new law requires mandatory speculative position limits—to ensure that too much concentration doesn’t exist.

 
Why would they want to delay implementing these perfectly reasonable position limits?  Well I believe that they are protecting the entities working for the government to control the metals market.  Recently news surfaced that the whole CFTC is rigged against the little investor.  This investor is typically long so they would complain about shorts.  These are the same shorts used to control the market.  So is the market rigged?  What do you think:
 
Retiring CFTC judge says colleague biased against complainants
Submitted by cpowell on 07:00AM ET Thursday, October 21, 2010. Section: Daily Dispatches
By David S. Hilzenrath
Washington Post
Tuesday, October 19, 2010
 
As George H. Painter was preparing to retire recently as one of two administrative law judges presiding over investor complaints at the Commodity Futures Trading Commission, he issued an extraordinary request:
 
Please don't assign my pending cases to the other judge.
 
In a notice recently released by the CFTC, Painter said Judge Bruce Levine, his longtime colleague, had a secret agreement with a former Republican chairwoman of the agency to stand in the way of investors filing complaints with the agency.
 
"On Judge Levine's first week on the job, nearly twenty years ago, he came into my office and stated that he had promised Wendy Gramm, then Chairwoman of the Commission, that we would never rule in a complainant's favor," Painter wrote. "A review of his rulings will confirm that he fulfilled his vow," Painter wrote.
 
Painter continued: "Judge Levine, in the cynical guise of enforcing the rules, forces pro se complainants to run a hostile procedural gauntlet until they lose hope, and either withdraw their complaint or settle for a pittance, regardless of the merits of the case."
 
The CFTC oversees trading of the nation's most important commodities, including oil, gold and cotton. The agency's administrative law judges handle cases in which investors allege that trading professionals or financial firms violated the rules.
 
Asked to address Painter's notice, a CFTC spokesman declined to comment because, he said, the issue was a personnel matter.
An attorney adviser to Levine, Thaddeus Glotfelty, said that the official position of the CFTC press office was to decline comment and that "Judge Levine has determined to go along with that."
 
In his notice about his impending retirement, Painter said he could not "in good conscience" simply leave his seven reparation cases to Levine, and he recommended that the CFTC try to enlist another administrative judge from elsewhere in the federal government. The notice was written in mid-September, but released by the CFTC weeks later.
 
Levine was the subject of a story 10 years ago in the Wall Street Journal, which said that except in a handful of cases in which defunct firms failed to defend themselves, Levine had never ruled in favor of an investor.
 
Gramm could not be reached for comment. Her husband, former senator Phil Gramm (R-Tex.), said he would pass along a message but added, "I doubt she's going to want to get involved in this."
 
Wendy Gramm is listed as a distinguished senior scholar at George Mason University's Mercatus Center, but a spokeswoman for the center, Catherine Behan, said Gramm is not active there.
 
Gramm was head of the CFTC just before president Bill Clinton took office. She has been criticized by Democrats for helping firms such as Goldman Sachs and Enron gain influence over the commodity markets. After leaving the CFTC, she joined Enron's board.
 
This is not a tin foil hat conspiracy, it's a fact.  Each week brings out more evidence.  I'm also seeing more and more nonsense about the gold "bubble."  That's just crazy.  Richard Russell the grand master of newsletter writers had this to say last week:
 

...Conclusion -- The gold and precious metals universe is probably the biggest and most profitable bull market that most of us will see in our lifetime. Suffice it to say, my older subscribers who have moved into the gold bull market with both feet are now sitting with immense paper profits. And I continue to remind my subscribers that the third or speculative phase of the precious metals bull market has not yet arrived.

"Gold possesses a singular property shared by no other item. A gold bull market is fed by both fear and greed. The fear quotient is obvious -- the fear is seen in the question, "Will sovereign debt ever be paid off, and will fiat currencies even survive?" The greed quotient arrives as the precious metals market heats up and gains publicity. In due time, literally everyone will want to join and ride the gold bull.
The questions I am most frequently asked are (1) Should I trade the gold bull market? The Russell answer to this question is “NO. Just add to your positions on corrections.”
(2) I have huge profits in silver and gold. Should I take my profits? The Russell answer to the question is ‘No. The bull market is not over.’

(3) Is it too late to enter the precious metals bull market? Again, the Russell answer is “No. We have yet to see the universal excitement that I expect to see before the gold bull market breathes its last.”

This man has studied markets for over 50 years!  Listen to him.  Don't trade your core gold positions.  The options I play are for my entertainment and recreation.  I don't trade my core. 
 
New Edge?
 
I'm always looking for an edge and last week we may have found one, from King World News:
 
 
The contact out of London has updated King World News on the massive Asian buyers which have been accumulating both gold and silver.  The London source stated, "A bunch of the weak hands are now on the short side of this market.  We are very close to a floor because of massive Asian buying.  People have to remember these Asian buyers are now controlling the gold and silver markets, it is not the little guy."
 
As far as the gold market is concerned, gold will be $150 higher from here within five weeks. 
 
So here's the play.  Risky as hell, but it's worth a try with a small portion of your NON-CORE positions.  The January options have about 6 weeks to run.  If the price of gold rises this 10% in five weeks, these options of major gold companies (see below) should see anywhere from a doubling to maybe even 6 or 7 fold increases.  So what you have is a lottery ticket which will probably end up worthless, but could bring quick returns.  Remember, don't do this with any money that you can't afford to lose.  If you have questions, let me know.
 
I'm including a VERY funny video here of a subtitled scene from a German made Hitler movie.  In the movie Hitler is being told about the war being lost.  Someone has written subtitles and changed the theme to the gold and silver rigging operation blowing up.  Funny, funny, funny...but there is very crude language so be warned.  Actually it's not language but subtitles.  Enjoy.
 
 
 
Positions -  I'm going to start listing my VERY risky out of the money option positions again.  Please, please, please, do not buy these with money you can't afford to lose.  My recent picks have done very well, but these things can turn on a dime.  Just to balance these risky option out, I'm also going to list stocks I like, but am not currently invested in.
 
Goro  (closed at $27.69, up $1.34, average price paid, $6.10)  There was GORO news this week from John Doody of the Gold Stock Analyst Newsletter.  He visited the property and reiterated his buy recommendation.  His targets are $36 short term and $57 long term.  In his analysis he believed that GORO could double their dividend to 6 cents a month by the end of next year.  Using the industry average dividend range of .5% to 1.5%, he calculated that the price of GORO could be $48-$144.  This is pretty exciting stuff from a guy who tends to be somewhat low key.  I don't think he would have said these numbers without good reason.  Still a green light to buy GORO, IMHO.
  
Mexus Gold  (closed .23, down 2 cents, average price paid, $0.20)   
 
GORO June 11, call options, strike $20 (closed at $8.50, up $1.25, [if you're trying to learn about options, now that these are deeply in the money, notice how they will move almost dollar for dollar with the underlying stock, ] average price paid, $5.60)
 
SLW options  March 2011 expiration
        40 strike (closed at $3.75,  down $.59, price paid $2.75)
        45 strike (closed at $2.28, down $.42, price paid $1.62)
 
New Positions (see explanation above)
 
Call Options, gold stocks, January 2011 expiration
       AEM - 90 Strike (closed $1.43, price paid $1.45)
       GG - 50 Strike (closed $.54, price paid $.57)
       NEM - 60 Strike (closed $1.24, price paid $1.12)
 
Finally, a video of a very good alternative to throwing that Christmas tree in the garbage, have a great week!