Curried Wealth Building
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October 2, 2011
Issue 167  -  The Light at the End of the Tunnel
 
 
Thomas Jefferson: 

 "The advancement and diffusion of knowledge is the only guardian of true liberty. A people armed and free forms a barrier against the enterprises of ambition and is a bulwark for the nation against foreign invasion and domestic oppression. Americans need never fear their government because of the advantage of being armed, which the Americans possess over the people of almost every other nation.

History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling the money and its issuance.
 
A government that does not trust it's law-abiding citizens to keep and bear arms is itself unworthy of trust."
 

And so it goes.  The further we stray down the path of a government nanny state, the further from freedom we drift.  As the money changers make rules and laws that protect them while attacking you, the only course of action is patience.  Knowing that the final outcome is all but assured, you can stand at ease.  An in hand metal stash, is the true life raft and nothing can change that.  The shenanigans being perpetuated in the markets are truly sickening, but will not stand the test of time. 
 
Meanwhile, the powers propagate lie after lie.

Gold: Is it time to call the top?

Commentary: Speculators had an awesome run, but it may be over

DALLAS (MarketWatch) — The market gods tend to be jealous and vengeful and appear to take great pleasure in humbling the arrogant. So I know better than to say “I told you so” despite my recent warnings about a gold bubble.

Besides, even after last week’s bloodletting, gold still is one of the best-performing assets of 2011; the September sell-off did little more than erase August’s parabolic surge. And, in the interests of full disclosure, I’ve been on the record as a gold bear since it crossed the $1,200 mark (it was at about that point that the gold bull market entered the theater of the absurd with such novelties as ATM machines that dispense gold ingots).

 
 
So there you have it.  Gold has topped.  This dodo said so.  This guy is proud of his bear stance since $1200.  That's really something to be crowing about.  What these dolts don't understand is they are doing the bidding of those in control.  Distracting people from the ONLY thing that can save them in the coming debacle.  Instead we get this type of commentary:
 
 
Gold is backed by nothing.....but the dollar is backed by the government.  Oh, you mean the bankrupt United States government?  Well then, that makes me feel better about my dollars.  Where do they get these people?  The depth of ignorance is mind bending.  Of course if something is backed by a broke entity, there is no backing at all but that fact escapes these "reporters."  In addition, she will never see a problem with this: 
 
Banks Increase Holdings in Derivatives
By BEN PROTESS

Even as federal regulators ratchet up scrutiny of the derivatives market, Wall Street is diving deeper into the $600 trillion industry, a new government report found.

The banking industry in the second quarter raised its stake in derivatives more than 11 percent from the same period a year earlier, according to the report by the Comptroller of the Currency, the federal agency that regulates national banks. Banks now hold nearly $250 trillion of the contracts, primarily futures and swaps, which derive their value from an underlying asset like an interest rate or a bundle of mortgages.

The nation’s four biggest banks — JPMorgan Chase, Citigroup, Bank of America and Goldman Sachs — are the biggest players, holding roughly 95 percent of the industry’s total exposure to derivatives. JPMorgan, which holds the most among commercial banks, carries some $78 trillion worth of derivatives on its books, according to the report. Citi is next on the list, with $56 trillion, up from $54 trillion in the first quarter.

"Derivatives activity in the U.S. banking system continues to be dominated by a small group of large financial institutions," the report noted. While the number of banks holding derivatives increased modestly to 1,070, 99 percent are held by only 25 banks.

The derivatives industry — which allows banks, hedge funds and corporations to both hedge risk and speculate on market fluctuations – was at the center of the financial crisis. The American International Group became a symbol of the industry’s pitfalls, having sold billions of dollars in credit default swaps as insurance on risky mortgage-backed securities. When the mortgage market crumbled during the crisis, the insurance giant lacked the capital to honor their agreements.

Credit default swaps make up 97 percent of total credit derivatives at banks, though they are a small piece of the overall derivatives pie. Commercial banks primarily use interest rate products, which comprise 82 percent of the total value of derivatives.

The Dodd-Frank financial regulatory law overhauled the industry, forcing many derivatives contracts onto regulated exchanges. Many deals must also go through clearinghouses, which act as a backstop in case one party defaults. Regulators are writing more than 50 new derivatives rules, moving the once murky market onto Washington’s radar screen.

 
Hmmm.....I thought that the banks were REDUCING their risk?  $600 trillion?  Isn't that a lot?  Meanwhile, all things being done by the Fed/government are hurting the little guy: 
 
Analysis: Fed's twist moves hurts company pension plans

By Aaron Pressman

BOSTON | Thu Sep 22, 2011 10:40am EDT

BOSTON (Reuters) - The Federal Reserve's 'Operation Twist' to bring down bond yields and stimulate the economy is likely to cause pain for the nation's largest pension funds, already struggling with funding shortfalls from the recent stock market decline.

Hit both by falling stock prices and falling bond yields, the 100 largest pension plans of public U.S. companies have assets covering only 79 percent of their liabilities as of the end of August, down from 86 percent at the end of 2010, according to consulting firm Milliman Inc.

Already approaching its all-time low of 70.1 percent in August, 2010, the funding ratio could fall below 60 percent within two years if equities stagnate and rates decline further, Milliman projected.

"I've said rates were at historic lows for three years now and they keep going lower," John Ehrhardt, a principal in the firm's New York office, said.

Corporate pensions were well funded back in 2007 before the financial crisis hit, but even though the stock market has recouped most of its losses, falling bond yields have prevented the funds from regaining their solid footing.

"The bond market tends to be the forgotten side of the equation," David Kelly, a principal at consulting firm Mercer in Chicago, said. "The interest rate risk turns out to be at least as large a risk factor as equity risk for pensions."

The Federal Reserve on Wednesday announced its latest effort to lower yields and kick start the economy through $400 billion of bond purchases.

That could drive down the yields on AA-rated corporate bonds and related benchmarks used by the pension funds to calculate their liabilities.

Most private U.S. defined benefit plans, which oversee about $2 trillion, are hurt when long-term yields decline because of the way the plans must value future payouts they will make to retirees in coming decades.

The total doesn't include the more popular defined contribution plans, like 401(K)'s, which contain almost $5 trillion and put the onus on workers to manage their own finances. Those plans have been hit by falling markets, too, but do not face the same accounting challenge.

Lower rates mean the future benefits have a higher present value, ballooning the defined benefit funds' liabilities. Pension consultants estimate a 1.0 percent drop in rates increases liabilities by 10 percent to 15 percent.

Well-managed pensions are supposed to match the current worth of their assets and liabilities. In essence, a present value calculation estimates how much it would cost to borrow the total future liabilities right now and deducts the cost of the interest.

Falling rates also increase the value of any bonds the funds may own but most pension portfolios tilt more toward equities and away from fixed income assets. And bonds they do own tend to be in shorter maturities, which appreciate less when rates fall.

"Unfortunately, the vast majority of pension funds continue to pursue aggressively mis-matched strategies," said Bradley Belt, senior managing director at the Milken Institute and the former head of the U.S. Pension Benefit Guaranty Corp.

If the funds' assets fall short, companies that sponsor the plans for their workers will have to increase their annual contributions by tens of billions of dollars over the next few years, Belt said. And if the companies ultimately fall short, the PBGC's government insurance would be on the hook.

Laurence Fink, chief executive of money manager BlackRock, called the pension situation and similar underfunding of individual retirement accounts "probably the largest crisis that the U.S. is going to face." Speaking at a conference in New York on September 12, Fink said low rates were having a "dramatic impact" in harming pension funds.

BlackRock, which oversees $3.7 trillion for pension funds and other investors, is urging many of its corporate pension plan clients to match assets and liabilities more closely, in part by shifting money from equities to bonds.

But with the funding ratios and bond rates so low, the matching programs should be phased in over several years, Andy Hunt, managing director at BlackRock in New York, said. "Pension plans need to learn the lessons of the past few years and set themselves on the right course for the future," Hunt said.

Further damage from lower rates is likely despite the fact that some closely watched rates, like the yield on the 10-year Treasury note, are already at historically low levels.

"Rates can still drop further," Leonard Grimando, director of corporate ratings at Standard & Poor's in New York, warned, noting that pension fund benchmarks are much higher than the 1.9 percent 10-year Treasury yield.

On average, companies rated by S&P used a discount rate of 5.34 percent in 2010, down from 5.85 percent in 2009.

"The current rate would now be slightly below 5 percent," Grimando said.

-END-

 
This is just the way things are.  You are not important.  Who cares about you?  They are only protecting the system.  This is just is more proof.  (as if you needed any)  Just in case you need MORE evidence, here ya go:
 
Jobs-Hard-To-Get Index Rises To Highest Level Since 1983

WASHINGTON (Reuters) - U.S. consumer confidence was little changed in September amid concerns about income as a gauge of labor market conditions deteriorated to its worst since 1983, an independent survey showed on Tuesday.

The Conference Board said its index of consumer attitudes ticked up to 45.4 from an upwardly revised 45.2 in August.

Economists polled by Reuters had expected the index to rise to 46.0 from a previously reported 44.5 in August. Consumer confidence is regarded as a measure of consumer health.

``The pessimism that shrouded consumers last month has also spilled into September. Consumers expressed greater concern about their expected earnings, a sign that does not bode well for spending,' said Lynn Franco, director of the Conference Board Consumer Research Center.

In a sign that people were struggling to find employment, the jobs-hard-to-get index rose to 50.0, the highest level since May 1983, from 48.5 the previous month.

 
 
The little guy is getting squeezed like a grape.  He can't find a job and a lot of these folks are getting desperate.  How desperate?  How about selling the family burial plot...
 
"Things have gotten so bad that many American families are selling off whatever they can in order to survive. For example, down in Florida hundreds of people have been selling off their burial plots in an attempt to raise cash. The following is an excerpt from a local news reportabout this new trend....
Sellers are posting online, using burial plot brokers, and also funeral homes to market the real estate. Some of those advertisements show single plots starting at about $1,000, while family plots can go for up to $50,000."
 
The exits are being blocked.  The economy sucks and the only true life rafts, gold and silver, are being played to make them look "risky."  Here is how one old timer saw the recent plunge in the metals:
 

Speaking of this plunge, veteran gold hand Ross Norman of Sharps Pixley has posted:

"It is not immediately clear at this juncture who was selling or why - but in placing such a huge order into the market when the least number of market participants were active tells you that they were out for dramatic effect. Anyone looking to offload significant amounts of metal at the best possible price would have done so when both London and New York were both open - this would have ensured they would have hit the market when it was most liquid and ensured they got the best price for their sale. Clearly finessing gold into the market was not their motive - they wanted a statement. "

Making a statement?   In "free" markets?  Does that jibe with capitalism?  Not in the books I've read. 
 
Here is a twitter post out of Europe where rumors indicate a Greek default in November:
 

More from Sky News correspondent Ed Conway (via Twitter):

  • G20 now preparing itself for Greek default after October - Sky sources. Will be on Sky News imminently with more
  • G20 sources: all efforts behind the scenes (by G20 members) are now going into recapitalising banks, preparing economies for default.
  • G20 sources: default not expected until after Cannes G20 early November. Emergency funding should still keep Greece afloat thru October
  • G20 sources: No suggestion Greek default need imply country leaving the euro
  • G20 sources: @ Washington summit marked difference in attitude. Confident euro members edging closer to recapitalising banks, expanding EFSF
When this happens, they will have to paper over it.  The alternative is just too grim.  The politicians will in no way go for austerity.  That won't keep them in office. 
 
As the printing begins again, the metals will skyrocket.  At that point, owning the metals and miners will be the only refuge.  To keep a lid on the prices of these vital life rafts, the authorities have employed all types of shenanigans to control the price and margin is a key one.  Here is a pretty good explanation of how this works:  (from GATA)
 

Bill,
As you know I have been keen on identifying leverage, and futures margin as one of the cabal's tools for manipulation. At the GATA London conference I showed how they were offering gold specs leverage at 25-1, triple the leverage of silver. Gold leverage at the time was 25-1, highest among the major commodities. This was puzzling to me and could only be explained by a need to lure silver specs away into a more manageable gold. I now think there were other motives as well. This in fact has likely been a standard op for the Comex and CME throughout the years in the war against gold.

The CME's (alleged) risk program known as SPAN is based on a sliding scale of volatility. Low volatility means higher leverages are permissible. As long as the cabal caps gold at 1% or 2% the SPAN system is fooled into showing low volatility. Gold gained $450, or 30%, between July 1st and September 6th yet SPAN said leave margins alone. All is well after all, very few days even exceeded 1%. Whether or not this is a coordinated effort might be debatable, but the bottom line is by constantly capping gold at 1% and 2% the spec gold traders are allowed to get vastly over-leveraged, and are easy pickings for a takedown. The cabal not only controls inflation expectations with their daily gold capping, they get the additional benefit of fooling risk management metrics. From there it only gets better for the cartel, as volatility then explodes during the takedown. This triggers SPAN-driven CME margin hikes that have the effect of pouring raw gasoline on a burning building. This is the premise of the research I have been hoping to conclude one day. If you cap gold daily at low percentages, volatility only occurs on the downside. This allows over-leveraged specs to be crushed after being "all in". I believe if you go back over the past 12 years you will find that gold leverage is constantly being allowed to escalate based on price-capped low-volatility, then when the time is right they harvest their crop of weak spec longs. Sow the seeds, fertilize generously, and finally, enjoy the bounty.

The current silver leverage is at an absolutely punishing 6.65-1, up from its low at 5.31-1. Gold is at 14.41-1, up from its recent low of 13.54-1. Both are nearing extreme lows, which means the sting is mostly over. I realize they also recently raised Treasury bond margins by 20%. That however only brings bond leverage down from the ionosphere to the mesosphere, still one level higher than the stratosphere. I'm not looking for any radical margin hikes though if bonds crash 20 points in a single week. That's the virtue of using leverage and margin as a defense, rather than a weapon.

Gold is exceeding the 2% rule today however it is a little skewed in light of the $300 takedown over the past week. It's quickly becoming a physical game. PM derivative interventions will soon fail due to their lack of even the tiniest bit of physical to back it up.
James Mc

 
These types of tricks are very well designed for maximum impact.  Creating a scary environment is one way to keep the masses away.  Calling it a bubble every five seconds is another.  In Asia, where the history of the metals is much more entrenched in the culture, these tactics are not working:
 

Tuesday, Sep 27, 2011
Reuters

Asia Gold: Buyers rush in after price slump; premiums up

SINGAPORE/MUMBAI - Asia's gold bugs have raced to snatch up physical material after the sharp correction in prices, just as the world's biggest gold consumer India prepares for its festival season.

The surge in buying interest boosted gold premiums in the region. In Tokyo, the spread between local and global prices returned to the positive territory for the first time since March.

A strong rally in the dollar and margin calls triggered a 10-per cent tumble over just four sessions in spot gold.

 

Prices fell to a 7-1/2-month low of US$1,534.49 (S$1,971.97) on Monday, 20 per cent below the record of US$1,920.30 hit in early September, and rebounded to about US$1,650.

"We've seen a lot of buy-on-dip type on the physical market," said Dick Poon, manager of precious metals at Heraeus in Hong Kong. "While speculators were busy liquidating their positions on the futures market, we didn't see any selling of physical material."

Poon said the strong investment interest in gold from the region is likely to support the bullish sentiment in bullion.

Premiums in Hong Kong rose to more than US$2 an ounce above spot prices, from US$1.20 to US$1.50 a week earlier, dealers said.

In Singapore, premiums increased to about US$1.50, from 90 US cents to US$1.20 a week earlier.

Japanese investors and industrial users alike were lured by the sudden drop in prices.

"The general public started to buy gold and platinum, and the good demand has pushed premium to 50 US cents," said a trader at a Tokyo-based bullion house, "Industrial users are also buying silver, gold and other metals."

But once gold prices rebound above US$1,700, the general public's interest in gold may fade, he added.

India rushes to buy

Gold traders in India rushed in, after domestic prices fell to their lowest in seven weeks on Monday, pushing premiums up, traders said.

"The correction has come in at a right time as we are entering into the festival season," said Pinakin Vyas, assistant vice-president with IndusInd Bank, a private gold importing bank in Mumbai.

Premiums on gold rose by 25 US cents to US$1.50-US$2 on London prices.

"People are buying with an investment purpose, thinking of profiting from lower prices. They are comfortable buying at below 27,000 rupees (S$705) levels," said Harshad Ajmera, proprietor with wholesaler in Kolkata, JJ Gold House.

27,000 rupees is just over US$546.

The most-active gold for October delivery on the Multi Commodity Exchange (MCX) stood at 26,340 rupees per 10 grams on Tuesday, down 8.4 per cent from its record of 28,744 rupees hit on Sept 6.

"Physical demand right now is not just decent, it is exceptionally strong," said UBS in a research note, after observing strong buying from India and elsewhere in Asia, as well as robust retail demand for coins in Europe.

Week ahead

An inauspicious period for gold buying will end on Tuesday, and a series of festivals will start in India with Dusshera on Oct. 6, followed by Dhanteras and Diwali later in the month, which is likely to keep gold demand higher.

China, the world's second-largest gold consumer and biggest gold producer, will be on a week-long public holiday, which is likely to benefit retail gold demand.

Investors will continue to watch the progress in Europe's effort to solve its debt crisis, as the bloc's officials are working to magnifying the firepower of the region's rescue fund.

-END-

Those who have firm grasp of gold's history and monetary purpose are rushing in to buy as the price drops.  As far as silver, the time is right to buy.  Here is a chart which shows the conditions:
 
 
One of the most important things here is the "RSI."  This is the relative strength indicator and shows how strong the price action (buying/selling) has been.  Any reading under 30 is rare and almost always indicates a time to buy.  We are to the point where the price can't drop much further without some buying entering.  This is an excellent time to buy silver (and gold) especially if you have been waiting.  Don't be afraid now.  Take the plunge.  You are buying a metal that is in short supply which is oversold.  That's a sweet combination.  Metal in hand is the ultimate insurance policy, and stay off margin!
 
Positions
 
GORO  (closed $18.42, down $4.18, average price paid $6) 
 
The shorts are in charge here.  The fundamentals of the company HAVEN'T changed.  This is a cash cow that unfortunately is under assault by a few hedge funds.  They will leave eventually.  Use this price weakness as an opportunity to buy..
 
Mexus Gold  (closed $.14, down $0.01, average price paid, $.22) 
 
Alexco Resource Corporation -  AXU  (closed $6.74, down $0.46, recommended at $7.90)  
 
Stocks    (Current status, out, sold on March 18)
 
The stock market is now in a severe down trend.  i am looking to slowly enter next week.
  
Physical Gold  (Closed $1682, down $8,  average price paid $395)
 
Physical Silver  (Closed $30.91,  down $0.08,  average price paid $5.31)
 
This week's video is courtesy of Shawn and features a very smart dog.  Have a great week!