Curried Wealth Building
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January 30, 2010
Issue 133  -  SITREP: Gold and Silver
 
After the recent fall in the metals, I thought it would be a good idea to access where we are.  First let's start with gold.  Gold has fallen quite a ways but nowhere near what I would call a "large" fall.  Gold could fall 30% more, and the bull market would still be strong.  I don't think that will happen, but as investors you must prepare for anything.  That way, you won't panic and sell at a bottom.  (you've never done that, have you???)
 
For years, the central banks have sold gold.  That has now stopped and is replaced with:
 

Central Bank plans to buy over 100 tons of gold every year

MOSCOW, January 24 (Itar-Tass) -- The Central Bank of Russia plans to buy more than 100 tonnes of gold to renew the country’s gold and foreign exchange reserves (or international reserve assets) every year, CBR First Deputy Chairman Georgy Luntovsky told reporters on Monday, giving no details pertaining to the terms.

Earlier, in an interview to the Prime Tass economic news agency First Deputy Chairman of the Bank Alexei Ulyukayev said that the Central Bank would increase the share of gold in the national reserves.

In the middle of October 2010, Director of the Bank’s Department of Financial Operations Sergei Shvetsov said that the bank did not import gold in 2010. The bank buys gold on the domestic market (in Russian banks).

According to the Central Bank, the reserves of gold in the Russian international reserve assets increased by 23.9 percent (152.4 tonnes) in 2010 to reach 25.4 million net troy ounces (790 tonnes) as of January 1, 2011, Prime Tass said.

As of January 1, 2009, the amount of monetary gold in Russia’s international reserves was at 16.4 million ounces (510.1 tonnes), the economic news agency said.

In 2009, the Central Bank’s gold reserves increased by 4.1 million ounces (127.5 tonnes) to reach 20.5 million ounces (637.6 tonnes) as of January 1, 2010, Prime Tass said.

 
Russia is obviously not part of the A-Team on global finances and I'm sure that our central bank is not too happy with this announcement.  Remember, China is also buying, along with Saudi Arabia.  This is making the suppression of gold harder and harder.  This recent sell-off didn't seem to have to same oomph as in the past.   I think the powers that be are now attempting to pad their own nests before things really go sour.  Exhibit 1:
 

Here It Comes: US Suspends New Issuance Under Supplementary Financing Program, $200 Billion Liquidity Gusher Imminent

Earlier this week we predicted that the US Treasury would wind down its SFP program, unleashing $200 billion in 56-day non-rollable "Fed bonds" on the market. We predicted this would occur by mid-February. As of a few minutes ago, the Treasury has just confirmed that starting February 3, this will be precisely the case. Per the Treasury, supplementary financing account to fall to USD 5bln, with the reason being the traditional explanation: decreasing funds in account as country nears debt ceiling.

As the revised table below shows, each Thursday beginning February 3 we will now see an incremental $25 billion in extra liquidity as the maturing 56-Day CMB is not rolled.

This makes sense, especially when considering of our expectation that the Fed will force the market to do a repeat performance of 2010, whereby it goes parabolic through mid-April and then it is smashed in another flash crash like event due to some exogenous variable, opening up the path for further Quantitative Easing. That said, it is likely that the PDs and the Fed's OMO will now orchestrate the perfect market boil up over the next 2 months as more than ample liquidity chases stocks at increasingly ridiculous multiples until the point where everything goes bidless just like on May 6.

 
This is a guarantee that things will NOT be acting normally, or according to fundamentals.  Chris Powell of GATA said it first, "We don't have market interventions, we have a market of interventions."  That says it best.  These guys are just trying to extract the last dollars of planet worth before things really turn bad.  This is one of the main reasons I think the stock market will continue higher for awhile longer.  The super rich are milking the system for billions of dollars while most suffer a loss of lifestyle:

Goldman Sachs bankers to receive $15.3bn in pay and bonuses

• Goldman Sachs revenues fall 13% but pay pot down only 5%
• Average pay drops as number of Goldman employees rises
• 'Compensation ratio' rises to 40% from 35.8% last year

Goldman Sachshas set aside $15.3bn (£9.5bn) to pay its staff in 2010– an average of $430,000 each – in a move that re-ignites the controversy over City pay and bonuses at a time when youth unemployment is hitting record highs in the UK.

The best known of all the Wall Street firms did not attempt to show the restraint of last yearwhen it reduced the amount being paid into its bonus pool in the fourth quarter of 2009 to make a $500m public donation to a charitable foundation, Goldman Sachs Gives.

The $15.3bn set aside for bonuses and salaries was down 5% on the $16bn for the previous year but did not fall as fast as revenues, which dropped 13% to $39.1bn in 2010.

The bank set aside $2.2bn in the fourth quarter alone even though revenue halved to $2.4bn during this period. Goldman has used 40% of its revenue to pay staff, some 5,500 of whom work in the City and will begin to learn in the coming days about the size of their 2010 bonuses.

In 2009 the bank cut this so-called compensation ratio to 35.8% – the lowest since it went public in 1999 – in attempt to demonstrate restraint.

So Goldman Sachs, the most prolific supplier of government top executives is giving out more ridiculous bonuses.  Notice they are giving out more of the revenue than before in a probable hint that the this year could be a bad one.  Remember Wall Street firms give most pay in bonuses and it is paid at the end of year.  So they might be getting in a last dose of pay before a predicted hit this year.  How about the other notorious government partner, JPMorgan?  First a chart:
 
 
 
Why did I show this chart showing an outrageous amount of people on food stamps?  How does it play into the super rich padding their nests?  Easy: (from GATA)
 
The More Americans That Go On Food Stamps The More Money JP Morgan Makes

JP Morgan is the largest processor of food stamp benefits in the United States. JP Morgan has contracted to provide food stamp debit cards in 26 U.S. states and the District of Columbia. JP Morgan is paid for each case that it handles, so that means that the more Americans that go on food stamps, the more profits JP Morgan makes. Yes, you read that correctly. When the number of Americans on food stamps goes up, JP Morgan makes more money. In the video posted below, JP Morgan executive Christopher Paton admits that this is "a very important business to JP Morgan" and that it is doing very well. Considering the fact that the number of Americans on food stamps has exploded from 26 million in 2007 to 43 million today, one can only imagine how much JP Morgan's profits in this area have soared. But doesn't this give JP Morgan an incentive to keep the number of Americans enrolled in the food stamp program as high as possible?

There are just some things that are a little too "creepy" to be "outsourced" to private corporations. The JP Morgan executive in the interview below does his best to put a positive spin on all this, but it just seems really unsavory for a big Wall Street bank to be making so much money off of the suffering of tens of millions of Americans....

So if unemployment goes down will this ruin JP Morgan's food stamp business?

Well, apparently not. In the interview Paton says that 40% of food stamp recipients are currently working, and he seems convinced that there could be further "growth" in that segment.

So is this what America is turning into?

A place where tens of millions of the unemployed and the working poor crawl over to Wal-Mart and the dollar store every month to use the food stamp debit cards provided to them by JP Morgan?

It turns out that JP Morgan also provides child support debit cards in 15 U.S. states and they also provide unemployment insurance benefit debit cards in seven states.

Apparently states have found that they can save millions of dollars by "outsourcing" the provision of these benefits to big financial firms like JP Morgan.

So what happens if you have a problem with your food stamp debit card?

Well, you call up a JP Morgan service center. When you do this, there is a very good chance that you are going to be helped by a JP Morgan call center employee in India.

That's right - it turns out that JP Morgan is saving money by "outsourcing" food stamp customer service calls to India.

When ABC News asked JP Morgan about this, the company would not tell ABC News which states have customer service calls sent to India and which states have them handled inside the United States....

JP Morgan is the only one today still operating public-assistance call centers overseas. The company refused to say which states had calls routed to India and which ones had calls stay domestically. That decision, the company said, was often left up to the individual states.

JP Morgan has been moving some of these call center jobs back inside the United States due to political pressure, but this whole situation is a really good example of what the "global economy" is doing to middle class Americans.

Just try to imagine the irony - a formerly middle class American that has lost a job to outsourcing calls up to get help with food stamp benefits only to be answered by a call center employee in India.

Welcome to the global economy, eh?

But wait, there is more.

It has just been announced that JP Morgan has admitted that they wrongly foreclosed on over a dozen military families and that they have been overcharging "thousands" of other military families on their mortgages.

Ouch.

It is a really bad public relations move to mess with military families.

Is anyone over at JP Morgan even paying attention?

JP Morgan has also been one of the primary financial institutions involved in the foreclosure "robo-signing" scandal.

They just seem to be having all kinds of problems lately. But they are not alone.

The truth is that we have gotten to the point where big Wall Street banks such as JP Morgan, Goldman Sachs, Citibank and Morgan Stanley just have way, way too much power.

The biggest Wall Street financial institutions had no trouble begging for bailouts from the U.S. government during the financial crisis, but when the American people have needed a little grace and mercy from them they have been less than helpful.

Try and wrap your brain around the fact that a BANK is benefiting by having more people on the dole!!!  You can't make this up.  Why in the world is this allowed to happen?  Where is the outrage?  Oh, wait, that's right, the public would never even SEE this story.  Keep the sheeple in the mushroom room. 
 
 
People have so little touch with real news that it is ensuring our country remains sluggish and obedient. 
 
Another part of the gold and silver takedowns was this old trick:  (from zerohedge)
 
 
Inflationary Guerilla Tactics Resume As Comex, Nymex Hike Margins On Gold, Silver, Cracks, Spreads And Other Products

Submitted by

Tyler Durden on 01/20/2011 20:11 -0500

Wonder why the smart money was rushing headlong out of gold and silver over the past few days, and especially today in the AM session? Here is your answer: in tried and true fashion the Comex just hiked margins in gold, and silver by about 6%, and threw in a few other commodities to mask things up. And unlike the last time it did it, when it could at least pretend to justify its actions with the surge in gold price, this time with the PM complex dropping, we wonder what excuse the CME will use this time. Initial and Maintenance margins were just increased in everything from 10 Tr Oz Gold Futs, Comex 100 Gold Futures, Comex Miny Gold and Silver, E-mini Gold and Silver, Comex 5000 silver futures to Silver trade at settle. Also added were Copper, Iron Ore, propane, butane, and other nat gas. Most notably, and confirming that the administration and the money printing authorities are terrified by the surge in crude, the CME also hiked margins in various refined products and coal. The official scramble to "contain" the aftermath of Bernanke's lunacy is accelerating. We wonder when REDI, Prime Brokers and E-trade will comparable collapse purchasing margin for stock trading accounts. Of course, as with all other such superficial market interventions, the impact is shallow and is overrun in a matter of days.

And no...there was absolutely no leak this time. We promise.

This is so blatant, that I believe it is now safe to buy gold and silver.  There could still be a further takedown, but the chances are shrinking.  Think about this raising of margins during a price DROP!  That is completely wrong.  Margins are raised on rising prices to ensure the parties can cover any future losses on the larger nominal value of the contracts.  The fact that they raised them during a fall, shows a sinister plan, and desperation.  The fact that the news was probably leaked to "friends" who could then short without fear of loss, is just plain sick and should never occur in a free market system.  Then again, we don't have that anymore.
 
Silver is in the same boat, only much more undervalued.  It is going to go higher than anyone expects and the signs are growing:
 

US Mint Reports Unprecedented Buying Spree Of Physical Silver

JANUARY 16, 2011 Three days ago we noted that in just the first week of January, the US Mint had sold 2,221,000 ounces of silver "a number which if run-rated would be an absolutely all time monthly record," A quick glance at the tally today, shows that something very scary is going on. In the subsequent three days, the number has surged by 50% and has hit 3,407,000 ounces of silver! In just the first 12 days of the month we have already surpassed the total monthly sales of 9 separate months of 2010.
 
This is going to affect the price at some point.  Price must rise to quell demand.  Until that happens, buy, buy, buy.  This is a gift, take it.  (Sorry the commentary is shorter this week, but I got hit by the flu bug.)
 
Positions
 
Goro  (closed at $23.40, down $1.62, average price paid, $6.10) 
 
Well, GORO did make it to my $22 target and I did buy more.  It looks like the stock has found a bottom and has advanced nicely.  Hopefully the fall is done.  It looks like they will be announcing their 7th dividend as their home page has a 2011 column added.  With the dividend, the stock is harder to drive down as the yield rises with a falling stock price.  This makes it more attractive.
 
.Mexus Gold  (closed $.23, unchanged, average price paid, $.20) 
 
Stocks  (I'm adding this section to let you know if I'm currently  exposed to the general stock market.  I reentered the market January 3 as I stated in my Predictions blog entry.)  Current status, Long.
 
 
 
I'll close with a video of the worst scenes in movie history.  How they made it into a finished movie is a mystery for the ages, have a great week!