December 2011 Market

[68Camaro]

It certainly could... can't predict things that well with ANY certainty. But it also seems like there has to appear a disconnect between physical and paper, at some point, because either the existing exchanges fail, or people demand physical. I think long term remains up, so I'm cost averaging at this point, and if I fail to pick the low to buy, so be it. If it really drops, while people also get really scared because things suck and institutions are failing, I think the demand for physical will be THROUGH THE ROOF, which will reverse the price quickly.

[68Camaro]

MSM quote.

"Gold has been hammered in recent days as fund managers liquidate their holdings, either to cover losses elsewhere or to lock in profits on an asset that is still up more than 10 percent for the year."

The size of the action does involve funds. I don't believe gold would get below $1500 - not physical gold - as it would be bought up by central banks at some threshold level. No accounting for paper gold, however.

Recall that gold at $1500 was still considered spectacular just a few months ago.

[68Camaro]

Kyle Bass on Europe "Only Way Out Is to Break Up"

http://www.cnbc.com/id/45669180

[68Camaro]

Jim Sinclair comments yesterday on the recent trading action:

When asked about the technical damage in the gold market, Sinclair stated, “It isn’t really longer-term. The technical damage right here and now is something that from today’s lows could be corrected in a few days, easily repairable. You’ve got support between $1,549 and $1,577. You’ve also got it overlaying $1,519 to $1,572. There is every possibility that you’ve seen the absolute worst of this as we’re talking now. The most important thing is volatility. One thing this shows you, and it increases continually, is this is the wildest chop we’ve ever been in, in the history of trading gold, in terms of ups and downs. It means to me that gold is going to rise to prices even higher than I expected...

I don’t see gold trading significantly lower than it is trading at right now.”

When asked what his father Bert Seligman and legendary trader Jesse Livermore, who were business partners, would be thinking on a day like today, Sinclair replied, “If this isn’t a sign of capitulation, I’ve never seen one. Today I think that’s just what you’ve seen. You’ll know very soon. It will depend over the next few days whether or not this supposed technical damage is not technically repaired.”

[68Camaro]

A severe lesson along with good advice from Richard Russell - a voice of experience:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/12/15_Richard_Russell_-_Gold_Trading_Above_%241%2C500_is_Bullish_Action.html

[68Camaro]

James Turk on "Lehman II":

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/12/13_Turk_-_Lehman_II_in_Progress_as_Financial_System_Implodes.html

You can’t trust any counterparty anymore. Not your broker, not your bank, not the regulators, not the exchange and not even the clearinghouse. In one short stroke, MF Global has knocked out all the props holding up the one essential ingredient needed for any market to function – namely, confidence.

Frankly, Eric, what is happening right now is something few people alive today have ever experienced. But it is something we can learn about from history books. The loss of confidence in the market structure means a drop in economic activity.

There will also be a decline in living standards caused by the destruction of financial assets. In other words, your paper assets one day appear valuable and then the next day are worthless or nearly so because the counterparty failed. That is the message from the MF Global collapse that the market is now assessing.

Everyone should be carefully paying attention to what is happening on the CME, the biggest futures market in the world. The drop in volumes and open interest are a reflection of the decline in confidence in the various counterparties. The same thinking applies to the world’s stock exchanges, so watch those too.

The erosion of confidence goes hand-in-hand with a decline in trading volumes until the hyperinflationary tipping point is reached. This is when volumes in shares of commodity producers or companies producing life’s essentials soar as people buy these shares as one way of exiting from paper currency.

[theo]

I'm still trying to figure out how deep this rabbit hole goes. Are we talking about just the commodity exchanges or the markets as a whole. If its the latter even mining shares won't be safe unless we hold the certificates ourselves.

[68Camaro]

I don't even know if physical paper stock certificates actually exist anymore.

10 years ago I inherited some muni "bearer bonds" from my mom when she died. These are effectively like cash, little certificates that you tore out and cashed in on the due date. They used to be common, but every time I cashed one in the people at the bank looked at me like me head was spinning like a top - had to call for instructions on what to do. I finally turned them in to my broker and got them converted to electronic form (eventually sold them). I'm not sure they exist any more either.

[theo]

They are probably pretty rare, but I believe we have the right to hold physical proof of ownership of any securities. They wouldn't be terribly liquid, but it may be an option when/if we lose faith in the major brokerage houses.

[68Camaro]

It was suggested in another thread that I shouldn't be nervous. Now, not wanting to take that out of context, and not wanting to digress onto a different discussion path in that thread, I didn't reply there, but I had to reflect on the comment. There are different types of "nervous". Am I overly fearful? No. Do I believe that there is a higher power that has my best interests at heart, and who is truly in ultimate control of the long-term outcome of this mess? Yes!


But ... should I be concerned about the path the country/world is on, and the consequences to people?

Absolutely! I hope for the best, but try to prepare for something close to the worst. And regardless of the eventual magnitude of the "badness", nothing good can come from the actions of the politicians. The continual debt of virtually all the world's countries, being run for the primary purpose of giving entitlements to people, is a path to disaster, and we are well down that path! The lack of honor and integrity in our highest institutions, is cause for great distress!

Conversely, should I be happy about my state? Well, ... yes! I should at peace in all things, if not happy. I am incredibly blessed, and I try to spread that blessing.

That sounds like an impossible state, but it is possible to be concerned and distressed, yet - in your core - at peace and happy about your state and ultimate destiny.

[68Camaro]

And the market continues its predictable psychosis. With no new "bad" news in the past 24 hours, the Yahoo headline becomes "Wall Street Rises as Confidence Gains".

[68Camaro]

Interesting - sanity sort of prevailed, as the market ended flat on uncertain rumors, and gold and silver started trying to retrace their steps back up.

Gold closes at the session high, with the ask price above 1600. Silver almost hits 30, backs slightly and then recovers to close at 29.74. Respectable and relatively quick recoveries off the lows of just yesterday. Now they have to claw their way back again, as they do each time this happens.

Rumors abounding about a new round of credit downgrades, possibly this evening, but I haven't seen anything announced yet.

The Euro now considered "up" to have closed over 1.30, quite a change from a few days ago. Perhaps the new norm for a few more days. But it wasn't too long ago in my memory that the Euro was sub-dollar. I remember going to Europe when it was about .90 to the buck. Good times, then.

[theo]

They are probably pretty rare, but I believe we have the right to hold physical proof of ownership of any securities. They wouldn't be terribly liquid, but it may be an option when/if we lose faith in the major brokerage houses.

Here's an excerpt from an article that seems to address this:

http://www.financialsense.com/contribut ... patriation

I just want my assets out of the electronic system

Before I get in to the nitty-gritty of moving your assets out of the electronic system, let's cover the entities likely to be involved:

The issuer of the stock shares or bond: generally a company, a municipality, a state government, or a country. (Read more about issuers.)
The transfer agent for the stock shares or bond: a bank or trust company an issuer uses to keep track of individuals or entities that own their stocks and bonds. Sometimes issuers act as their own transfer agents. (Read more about transfer agents.)
Broker/dealer or clearing firm: entity that holds typically holds your shares in electronic format in your behalf. (Read more about broker/dealers and clearing firms.)
How Do I Find the Transfer Agent for My Bond or Stock?

If an issuer uses a transfer agent, the information generally will be listed in the "investor relations" or "investor information" area of the issuer's website, usually in the "shareholder services" or "stock information" section.

The Securities Transfer Association, Inc. offers a list of members on its website.


And let's cover what your options are for holding your investments:

As an individual investor, you have up to three choices when it comes to holding your securities:

Physical Certificate — the security is registered in your name on the issuer's books, and you receive an actual, hard copy stock or bond certificate representing your ownership of the security.

"Direct" Registration — the security is registered in your name on the issuer's books, and either the company or its transfer agent holds the security for you in book-entry form. The "Direct Registration System" (also known as "DRS") allows investors to transfer securities held this way.

"Street Name" Registration — the security is registered in the name of your brokerage firm on the issuer's books, and your brokerage firm holds the security for you in "book-entry" form. "Book-entry" simply means that you do not receive a certificate. Instead, your broker keeps a record in its books that you own that particular security.
(slightly rearranged from "Holding Your Securities—Get the Facts," U.S. Securities and Exchange Commission, 03/04/2003)
By default, most brokerage accounts hold customers' assets in "street name."

And let's be realistic about the liquidity (ease of trading) of the three above options, which would include transaction speed and size of the market available to you.

Without being reintegrated into the electronic system, physical certificates themselves are not easy to sell because they have a limited market (your neighbor, perhaps). Reintegrating into the electronic system can take several weeks, and may involve fees.
Direct registration shares (which are still electronic) are moderately liquid, as some issuers and transfer agents offer a limited internal market for certain kinds of shares. You can transfer your electronic-format shares with the transfer agent/issuer to your brokerage account fairly easily, but the transfer itself may take several days to several weeks.
Street name registration offers the broadest market for your shares—any exchange that trades that stock or bond—and thus generally the most ease in selling your shares.

Getting Physical Certificates

Process for Getting Physical Certificates
This is pretty simple: just contact the entity currently holding your assets in electronic format (likely your broker, or, if you participate in direct registration, the issuer or transfer agent) and request delivery of your physical certificates.

Things to note:

Your broker might require this request in writing.
You might be charged a fee per certificate (usually one per company or specific bond) by your broker and/or by the transfer agent/issuer.
Your broker may only accommodate moving the shares to the transfer agent or issuer for direct registration. You would then need to contact each transfer agent or issuer directly to request delivery of your physical certificates.
It might take several weeks for the electronic assets to convert to physical certificates.
Due to the difficulties and timeframes involved with re-introducing physical certificates into the electronic trading system, your broker may no longer be willing to hold open an account that is, from their standpoint, essentially empty (just like a bank wouldn't be thrilled to keep your checking account open after you'd pulled out all your funds).

Pros of Getting Physical Certificates
Your shares can't be short-sold by any financial entity.
You may more easily be able to use your securities as collateral for a loan (per the SEC's "Holding Your Securities—Get the Facts").

Cons of Getting Physical Certificates
Unless your neighbor is willing to purchase your shares (which you'd then sign over to him or her), your physical certificates will have to re-enter the electronic system to be tradable (see process for reintegration into the electronic system below).
This process may involve opening or re-opening a brokerage account.
This process can take weeks and can involve fees.
Certain types of certificates take more effort to re-introduce into the electronic system.
If your certificate is lost or stolen, specific procedures must be followed (see steps for replacing securities certificates).
Replacement certificates usually involve a fee.

Address updates must be sent to all transfer agents or issuers for your physical certificates.
Re-registering shares (for example: from joint tenants with rights of survivorship to a trust name) could involve reaching out to each issuer/transfer agent to make this change on each certificate, which could need to be re-issued, which would likely involve a fee per certificate.
Your homeowner's or renter's insurance policy may or may not provide coverage for your certificates stored at home.
Should something happen to you, tracking down all your physical certificates could be a challenge for your heirs and beneficiaries.
If you own a stock you don't plan on selling for a long time, holding it in certificate form is probably okay. But if you hold a certificate that you'd like to sell if things got choppy in the market, this likely is not a workable option

[68Camaro]

Thanks for the research! Excellent summary. I think I'll put reference to this post in the "Table of Contents".

[68Camaro]

Markets are all over the place. Nearly impossible to predict short term.

So, what is "for sure"? Well, nothing, but what do we have conviction in?

a) continuing inability of governments to reign in their debt, including continuing annual debt increases
b) any attempts at serious cutbacks in entitlements, should that actually be attempted (not likely, but you never know - someone might try to be a hero), likely to lead to civil insurrection
c) continuing big-time printing of dollars
d) continuing low Fed interest rates
e) continuing flight from Euro to dollar (amongst Western interests)
f) continuing sovereign bank support for expanded gold purchases
g) expanding liquidity issues in Europe
h) continued sales of gold by those short of liquidity, temporarily supressing price

Technical chartists are all over the place. Some are predicting a market top, and a crashing PM market. Of course, as AL noted by bringing up a thread from Dec 2010, they predicted exactly that a year ago. And... there was a top, but it was very temporary. If you are calling a top, and you are correct, you still don't know how long the top will last. In the case of Dec 2010, the top led to a drop that continued on down into Feb, but by March it had hit a new peak and didn't look back until the parabolic move of August.

What do the fundamentals say? They say the dollar is screwed, and something has to replace it. Right now dollar may be king, but gold is the back-up, de facto, reserve currency. It may drop, but it will not crash - the alternate powers that be (TAPTB) will not let it.

[68Camaro]

5-year US Treasuries sold at auction this afternoon at 0.86%. Yep, that first digit is a ZERO. Less than 1% yield for FIVE YEARS. That's a negative yield, including expected inflation. Maybe a big-time negative yield, if inflation continues at current rates or higher.

Make sense? Only if you're the FED that is buying them. Then it makes a LOT of sense.

[68Camaro]

From Jim Willie/Ann Barnhardt on how the commodities markets will fail in PM:

http://www.financialsense.com/contribut ... rrelevance

•Arbitrage is set to kick in. Players will buy at the cheaper corrupt paper market in COMEX and sell in the higher honest physical market, wherever brokers can match to make deals. (It is the same phenomenon that ripped the Euro sovereign bond market apart, as the German Govt Bond yields remained much lower than the Spanish and Greek.) They will take advantage of a strong basis, buy at the discount offered by COMEX, and sell into the cash spot physical market.
•A linchpin holds the market together. Keeping the futures markets tied to the underlying cash physical market is the fact that the futures contracts permit taking delivery. That delivery mechanism just broke as linchpin in full view. The futures market has lost viability and trustworthiness because of the MFG collapse and theft.
•The entire delivery mechanism has been corrupted and undermined. Taking delivery has meant a holding of physical metal bars is stored in a certified vault with your name attached. No longer are such holdings considered safe. Thefts occurred, and lawsuits have occurred to decided upon ownership of bars in dispute.
•The de-coupling process comes when arbitrageurs finally lose all confidence in market interaction dynamics, as the cash market will lose connection on price from the futures market. Players will not be willing to take the risk of having their money, positions, and physical metals stolen or confiscated.
•As players flee the futures market, the paper futures prices will decline. The cash physical market will hold steady. The divergence will come and be noticed, then be widely publicized. The players will realize that the physical market is the only remaining game to be played with honest rules in effect. The cash dealers will ignore the futures prices, no longer a valid price discovery, seeing that market demand for their physical inventory is robust, and maintain their prices steady. Later, they will even raise the physical prices. Then later still, the parabolic spike comes for physical Gold & Silver.

[68Camaro]

COMEX is being bypassed by volume buyers!

From "London Trader"

http://kingworldnews.com/kingworldnews/ ... _Gold.html

The Chinese have continued to take delivery of both physical gold and silver directly from the ETF’s GLD and SLV. They are also going directly to producers. Entities are bypassing the COMEX altogether and going straight to gold mining companies. Every single month producers have a certain amount of gold and silver they sell. Normally they sell it to the bullion banks and the bullion banks, of course, leverage this gold and sell up to 100 times that in paper markets to control prices. They (bullion banks) hold that little bit of physical gold and claim they are backed up on their position to the CFTC. I have all my large buyers now going to producers and saying to them, ‘Look, don’t sell it to the bullion banks, we’ll buy it from you.’ So we are buying directly from the producers and this includes some sovereign entities which are doing the same thing. We’re struggling to get the physical out of these guys (producers) because they have so many people banging on their door, saying, ‘Sell it to us direct.’ What these buyers are doing is essentially taking gold out of the system, which means the bullion banks can’t leverage that gold anymore. So this is a huge, dynamic shift that wasn’t there before. Now we are working on one other thing. We’re beginning to offer them forward contracts. If you are a sovereign entity, what you are saying to these producers, especially on new projects, is, ‘Why don’t you sell the gold to me in 12 months? Here’s the cash, just provide it to me 12 months from now.’ These buyers are now cutting off future gold supply from the bullion banks....

This is a huge, tectonic shift in price dynamics going forward because it is taking price discovery away from the bullion banks. These large Chinese buyers and sovereign entities which are doing this are going to have a massive impact on the market.

Interestingly, so many people are bearish on gold right now and looking for a collapse in the price of gold. They don’t understand what is happening in the physical market. The bullish fundamentals I just described to you have enormous implications.

We are making a historic bottom right now. The paper gold, or virtual gold market, has diverged so far from the physical market that it’s no longer a credible marketplace. That’s the key thing that came out of a very important meeting I was in yesterday where we had some serious players. The people I was meeting with are all on the buy side and have been since the lows last week.

There are massive physical orders, sitting, waiting for any more discounts, and yet everyone else seems to be short. So you have huge fuel for a rally here. You have to keep in mind this recent plunge was orchestrated with borrowed gold and that borrowed gold is now gone. That’s why gold can’t go much lower. Any dips in price will be aggressively purchased. As I said earlier, right now we are witnessing a historic bottom.

[68Camaro]

Hero worship isn't a fact-based plan, but Jim Sinclair is a legend:

http://kingworldnews.com/kingworldnews/ ... _2012.html

The amount of discontent and bearishness among people who know better is enormous. It’s moved from bearishness to some form of anger. (This is a) historical bottom, capitulation. A clear sign that the gold market is moving into an outrageously oversold position, most certainly in anything that’s a common share.

You must not allow your emotions to direct your decisions. Your emotions will always be your best contrary indicator you have. You have to examine the circumstances and ask whether or not the reasons why you’ve committed to something have changed. And if they haven’t changed, you simply need to buck up and go the course because you’re right.

People are beginning to literally crack, defined as shifting their total focus to their emotions and away from their intellect. I’ve seen emotionalism in areas where it doesn’t belong, where it’s never existed before. I’m in total shock.

When I see people who have distinguished themselves under pressure, over years, let their emotions cloud their judgement, actually letting their emotions break over them like a tidal wave, it puts me in total shock....

We’re in the most manipulated markets. We’re in the most fraudulent markets in history. There has never been a time when you can have assets disappear from people and modest inquiries take place of the leaders of that company. What you are seeing go on right now favors the bankers and disfavors all others.

However, when it’s finally finished there will be one man standing and that one man standing will be gold, the only market that the banksters can’t control in the final chapter. In a very short period yesterday we had a range of $100, and I’m going to tell you and the listeners now, you haven’t seen anything yet compared to what you are going to see as gold moves toward $4,500.

When asked what to expect from gold in 2012, Sinclair stated, “Well into the high $2,000s. And as Truman said, ‘If you can’t stand the heat, you’ve got to get out of the kitchen.’ But let me tell you that when this year is over, the only hands left holding physical gold and gold shares are the strongest hands on the planet.

Every possible weak hand has been shaken out. Every person with emotions even latently capable of overwhelming their intellect, overwhelming their judgement, will have already overwhelmed it this week. After this week, the people who are left are people who will never give up their positions.

Merry Christmas!

[68Camaro]

A few minutes to relax and muse over the second cup of Christmas morning coffee, before we go over to the wife's family for a late breakfast.

On the supposed (and expected, eventual) disconnect between physical and paper...

At the moment the bullion mints, both governmental and private, are apparently still able to get bullion supply in volume at something close to spot prices. This because they are still offering their minted products at spot plus "small" mark-up.

There is suggestion that the physical market may tighten, and soon. We (people like me) are so removed from the details of the market (several levels of connection) that I strongly believe that by the time we are aware of the tightening, that it will fully upon us and essentially a done deal with little time (if any) to act, for those that haven't already acted. There MIGHT be a small, short window of opportunity to buy some last bits at paper spot from some sellers before things tighten, and skyrocket. But those that haven't already bought by now are going to have that same personal resistance to buying then. And they will miss the last best opportunity before PMs go to the next level.

What is the next level? The next level is that next price that more reflects true current market value. The valuation of PMs will be continually increasing over the next few years, and increasing until they reach a true parabolic value and overcorrect - but that may not be until $10,000 gold and $500 silver. Those dollar amounts may be some years away, and will be partly due to hyperinflation of the USD rather than reflective of any increase in "wealth". More immediately we've got at least one more (but maybe only one) period of revaluation that corrects from an undervalued state to a fairly valued state. At that level I believe we will be in the mid-to-upper $2000s for gold, and $80-$100 silver. And I think the bulk of that will occur in 2012, with maybe some spill-over into 2013, due (or not) to unpredictable timing of world events.

Intertwined in all this, near-term, are the issues with the current futures markets.

At some point very soon (<6 months) I believe physical will disconnect from paper. But, TPTB will be aware of the trend, and will continue to do their best to kick the can down the road another year, month, week. So there will be violent changes to come, before this shakes out.