Curried Wealth Building
Finding an Edge

If you want help with your finances, give me a call at 703-791-3243.
 February 13, 2011
Issue 135  -  Just Enjoy the Ride
(But Make Sure You're on the Bird)
 
 
 
Sometimes the greatest enemy is in the mirror.  Sometimes we sabotage ourselves much more efficiently then any enemy could ever manage.  Sometimes the urge to "do something", gets in the way of clear minded thinking on what may be a painfully obvious course of action.
 
I believe, that right now, the painfully obvious course of action is the constant accumulation of gold and silver along with gold and silver stocks.  If you just buy and hold these assets over the next 5 - 10 years, you will be greatly rewarded and probably enormously so.  The trend is your friend and there is no more obvious trend then the metals:
 
 
 
It's so obviously an uptrend that to NOT play it would be idiocy.  Please, please, please establish a PHYSICAL position as your bottom line position, THEN add the stocks.  Once you have established this core of physical and stocks, then you can play around and try to beat the market.  You will most likely fail, but at least you have your core.  The core should consist of at least 80% of your assets and preferably 90%.
 
The bull market in metals is continuing to speed up even as the price of the metals is somewhat muted.  Example #1: (from GATA)
 

Dave from Denver…

JP Morgan now will take gold as repo collateral

This is interesting, but what is REALLY interesing: "They will not accept ETF trust gold as collateral" And guess where the collateral gold will be "stored?" (read: leased out on the side from): London...here's the link: http://ftalphaville.ft.com/ blog/2011/02/07/480956/gold- is-good-to-go-at-jpmorgan- repos/ and the source article: http://www.goldcore.com/ research/goldcore_market_ update

This is HUGE not just because we know that JPM is running out of gold and silver to use for market manipulation, but it elevates physical gold to the same currency status as U.S. Treasuries, which were formerly regarded as good as gold. The fact that they won't accept ETF trust shares as collateral tells us all we need to know about the validity of ETFs as gold/silver surrogates...

 
So let's dig into this and try to understand it.  GLD is the gold ETF which supposedly has physical gold for each share they sell.  I don't believe that it is legitimate and the fact that JP is not accepting it as collateral is telling.  If they are accepting gold, why wouldn't they accept GLD if the two were equivalent, as almost EVERYONE promoting them will tell you?  Because they AREN'T equivalent, duh!  Don't overthink this.  Just buy the metal.  Now.  Time may be short as there are DOZENS of rumors flying around that the metals market may explode higher, especially in silver. 
 
Eric Sprott, a metals expert, and early bull, runs a bullion business.  He mentioned this week that he ordered some bars and when received noticed the manufacture date was AFTER his order.  The silver market is tight as a drum.  If you are buying physical right now, buy silver.  Reason?  First a chart:  (Rob Kirby)
 
 
What this shows is the correlation of the price of gold and silver.  Up until last September, the two traded nearly percentage point for percentage point.  In other words, highly correlated.  This would imply manipulation as two (even similar) markets shouldn't be nearly so highly correlated.  For instance platinum, another precious metal, has deviated from gold by huge margins at times.  What this chart hints at, is that the manipulation of silver is failing as silver is now trading with much less correlation.  What does that mean?  Higher prices for silver, probably much higher. 
 
The fact of the matter is that inflation is cranking up like crazy, especially in things you need to live.  Here is the commodity futures chart: (contraryinvestor)
 
 
Commodities are at an all-time high.  These higher prices take awhile to move to shelf prices.  A great thing to do right now is buy meat and freeze it as that will be going much higher this summer. 
 
Here is the reason this IS going to happen:  (zerohedge)
 

M2 Grows By $40 Billion In One Week, Hits Fresh All Time High




Just in case someone was confused about the relationship between liquidity, currency devaluation and nominal (not real) asset prices, the St. Louis Fed was kind enough to email us their weekly M2 level. And after last week's surprising drop, M2 once again rose, this time by a whopping $40 billion. Oh and before someone says that M3 is still declining, it isn't. Or rather the much more important monetary aggregate, that including all shadow banking liabilities is now increasing as we indicated during the last Z.1 spread. In one month, when the next Flow of Funds report is released we are confident we will confirm that in Q4 shadow banking increased by at least half a few hundred billion on an annualized basis. In other words the central bank reliquification is now on in full force, both in America and in every other place that has central banks. Which also explains why central banking hawks are now virtually extinct (cf: Axel Weber).

 
Electronic money is FLOODING the market.  M2 is the broadest money category that is currently reported by the Fed and it is at an all-time high.  This is driving up stocks (with zero volatility) and commodities.  There is not much else the Fed can do to keep the game going.  This is also driving interest rates up.  The Fed is also intervening here, look at this graph:  (zerohedge)
 
 
 
 
This chart shows the Fed auction results for their ten year bonds.  The bars show the percentage of each buying group.  The primary dealers (banks) and direct bidders are known entities and during the auction place their bids directly with the Treasury Department.  The indirect buyers are typically foreign entities but the key differences are that they are unknown and place their bids directly with the NY Federal Reserve.  This means the Fed can intervene here and no one would ever know.  As you look at the last bar from February 11, you will see the red line grow and the green line shrink.  This means the unknown bidders are buying more and more.  Is this the Fed intervening?  I believe so.
 
The ten year bond is the primary driver of home mortgage interest rates.  The Fed needs to keep this rate down to prevent the housing market from falling further.  As a tip, if you are looking to lock in a mortgage rate, check out the ten year rate on bloomberg.  This is the rate used to "set" the following day mortgage rates.  If this rate is not moving, don't lock in.  If it goes up a lot, it would be a good idea to lock in your rate that day, because the next day rates will go up.  (Your mortgage broker will NEVER tell you this and most don't even know this relationship exists)
 
Getting back to silver, an amazing thing has happened in that market.  Here from King World News:
 
King World News has received word from James Turk that silver is in extreme backwardation.  Turk stated, “There is a huge story that is brewing.  Silver is in backwardation to 2015, which is 13-cents cheaper than spot.  This is unbelievable.  Money does not go into backwardation except ‘in extremis’!”
 
A little explanation.  When you buy a future contract for any commodity you would expect to pay more than the current price, right.  You wouldn't expect to pay the same for oil today, than 2 years in future, right?  This is due to the storage costs, inflation, etc...   When the future price is higher, that is called contango.  This is the norm.  Backwardation is the opposite.  Today's prices are higher than the future prices.  This happens on occasion, but usually for a brief time.  To have ALL future contracts in silver backwardation has NEVER happened.  This is a serious sign that silver is going much higher. 
 
King World has also reported that the Chinese are going to take delivery of gold from the gold ETF GLD.  This is part of the deal with GLD, but you need to take delivery of a HUGE amount to take advantage of this option.  The Chinese are adding to their gold holdings, what do they know?  Follow their lead.  Get physical. 
 
Positions
 
Goro  (closed at $24.84, up $1.89, average price paid, $6.10) 
 
Mexus Gold  (closed $.24, up $0.01, average price paid, $.20) 
 
Mexus is shaping up to have a great year.  They are real close to starting their mining operation in Mexico, the cable pulling operation should begin by the end of April, and copper is skyrocketing:
 
 
When I ran my numbers for Mexus potential profits, I used Copper at $3.60, Nickel at $10.75, and Lead at $1.  Today those prices are $4.50, $12.62, and $1.14 respectively.  Here is an updated calculation from my Mexus page:
 
lead  -  1.57 sq in. x 12 = 18.84 cu. in per foot x .409 pounds in a cu in= 7.72 lbs of lead per linear foot.  Lead is about $1.14 a pound or $8.80 a foot.
 
nickel  -   .9114 sq in. x 12 = 10.94 cu. in per foot x .321 pounds per cu. in = 3.51 lbs per linear foot.  Nickel is about $12.62 a pound or $44.30 a foot.
 
copper  -  2.378 squ in x 12 = 28.536 cu in per foot x .323 pounds per cu. in = 9.22 lbs per linear foot.  Copper is about $3.60 or $41.49 a foot.
 
Total value per foot is $94.59  (versus $78.64)
Total value per mile is $499,435  (versus $415,219, +20%)
 
This means 20% more PURE profit for pulling the cable, as there is no added cost to pulling from these increases.  This company will be a cash cow if they can implement their pulling operation successfully.  Still would continue to buy up to $0.35 a share.
 
Stocks    (Current status, Long, 100%, 1/3 International, 1/3 small cap, 1/3 large cap)
 
Physical Gold  (Closed $1,356,  up $12,  average price paid $395)
 
Physical Silver  (Closed $29.91,  up $0.79,  average price paid $5.31)
 
Finally this week I leave you with a video that you can always view if you're feeling a little dense, because believe me, these people have you beat, have a great week!