Commentary for the Week of March 8

Yesterday’s forecast in Comex Silver caught the high of the day within a single penny, in theory allowing Rick’s Picks subscribers to short the December contract moments ahead of a 28-cent plunge. Here’s the analysis and advice exactly as it went out Sunday night:  “We’ve been focused on an important target at 22.505.  That’s a Hidden Pivot, and I have suggested using it as a minimum upside target. However, there is another significant Hidden Pivot at 21.635 with potential stopping power, and so I’m going to suggest extreme caution if and when the futures get there. The provenance of  this target is shown in the accompanying chart, and you don’t need to be a Pivoteer to understand why it deserves to be closely watched.  Scalpers can attempt shorting with a stop-loss as tight as 10 cents.” Subsequently, when the futures did indeed fall from an intraday high of $21.645, we advised covering half the position at a price that turned out to be pennies from the intraday low. Here’s the update exactly as it was appended to the original trading “tout” at 10:23 a.m. EDT:   “Having topped this morning a penny above the 21.635 target, the futures have since fallen 25 cents. Cover half of any short position now and use a fixed stop-loss at 21.515 for the rest. That’s where the 3-minute chart would turn bullish again. My minimum downside target for the very near term is 21.310, but at that point you should check back for further instructions, since we may want to implement a stop-loss based on the creation of an impulse leg on the lesser charts.” As things turned out, the futures traded no lower than 21.365 intraday, meaning that we ended the day hypothetically still short a single contract, based on an initial two-contract trade.  On paper, the position profit thus far

The Mother of All Bear Rallies wafted on Friday to within easy distance of re-igniting a bull trend that had seemed unstoppable until last spring. Back then, buyers who had driven the broad averages higher for fourteen months at an unsustainable, 45-degree pitch went limp, sending stocks into a vexatious roller-coaster ride of thousand-point ups and downs that have defied easy categorization as either consolidation or distribution. However, the bulls will have a chance to take charge unambiguously on Monday when shares begin to trade, since it will take a mere 60-point rally, to 10921, to turn the Dow’s daily chart bullish. We should note, however, that that wouldn’t quite clinch the bullish case for the longer-term, since a thousand-point rally to at least 11868 is needed. Last week’s dramatic liftoff was brought on by the usual suspects, including:  1) the virtual absence of sellers in a market that has been driven 99% by computer-trading and institutional prop desks; 2) a sufficient quantity of aggressively spun but ultimately meaningless “good” news to drive short-squeeze buying through key resistance; 3) a helping hand from opportunistic buying of U.S. index-futures in illiquid, overnight markets; and 4) a mood-driven window of opportunity for the mountebanks, self-promoters and insipid droolers of the talking-head world to interpret whatever news hits the tape as bullish.  For example, there was the marquee-named Quincy Krosby. She is the chief market strategist at Prudential Financial, and her cue was an item on the tape that said U.S. companies were spending more, according to the Wall Street Journal, “at a time when the global economy looks to be on the rise.”  No matter that the rising appearance of things was as fleeting as dew on cactus, or that the supposed uptick in corporate spending apparently involved just a handful of high-tech firms. Such details were easily overlooked in a

(There’s a good reason why bullion traders and investors have nicknamed the COMEX the CRIMEX. Read Robert Moore’s essay below to see why.  Moore, a frequent contributor to the Rick’s Picks forum, says bullion bankers have leveraged the commodity exchange’s liberal rules to perpetrate a fraud that would land you or me in jail. RA) In 2004, two young men named Robert “Buddha” Gomez and James Nichols fleeced thousands of people to the tune of $21 million by selling them “paper” automobiles.  Here’s a link to more on this fascinating story by Car and Driver’s John Philips. These two hucksters swindled thousands of people into paying real money for nonexistent cars that were part of the fabricated estate of a fictitious, deceased eccentric millionaire, who declared in his will that these cars were only to be sold to “decent, churchgoing people” at unheard of bargain-basement prices as low as $1,000. If Gomez and Nichols had known what was good for them, they would have studied the COMEX gold and silver futures market a little more closely before embarking on their little adventure into the exciting world of fraud. We all know that a futures contract is merely a paper promise to deliver a quantity of bullion (or some other commodity) for a pre-determined price at some future date. This is analogous to the paper promise to deliver “miracle cars” at some future estate settlement date; and as long as the promise to deliver can be sold to a willing buyer, then the scam can continue in perpetuity. Gomez and Nichols’ scheme collapsed and they were both hung out to dry when the need to deliver real cars to settle these purchase agreements came due. In the gold and silver markets, by contrast, the scam is aided and abetted by a regulatory environment whereby the threat of

(We're on a roll here, so I am letting this commentary run for a second consecutive day. My good friend Doug, a bear's bear and no slouch when it comes to making pellucid sense of the Big Picture, characterized my thoughts on hyperinflation as "nutty," but perhaps he has exaggerated. Readers?  RA)    For nearly twenty years, we haven’t flinched from our prediction that the massive debt build-up of the last generation would precipitate out as a deflationary bust.  That is what we still expect, although we now believe there is likely to be a hyperinflationary phase at some point as the financial system implodes. But the bottom line is that no matter how things play out, America’s standard of living will fall more steeply than at any other time since the Great Depression. As for the deflation-vs.-hyperinflation “debate,” it is useful only to the extent it helps predict how mortgage debtors will fare as this economic cataclysm plays out. We seriously doubt they will be “saved” by the kind of hyperinflation that would put hundred-thousand-dollar bills in Joe Homeowner’s wallet. Imagine how mortgage lenders would react if Joe could peel off three or four of those bills and say, “Okay, pal, we’re square.”  This scenario will seem particularly unlikely to those who believe that these economic hard times have been engineered by Masters of the Universe intent on stealing our property.  Trust us on this:  If there’s a hyperinflation, it is the rentiers who will get screwed most ruinously, not the little guys. Even so, that doesn’t rule out the prospect of a fleeting, hyperinflationary spike on the way down, since widespread notions concerning the dollar’s true value could change precipitously overnight. We mention this because notions are already beginning to change in ways that leave the dollar increasingly vulnerable to a global run. The

For once, the mainstream press has greeted “good” economic news with the blunt skepticism it deserves. According to the Cambridge, MA-based National Bureau of Economic Research (NBER), the Great Recession ended in June of 2009, eighteen months after it officially began.  “So Where’s the Party?” asked the Associated Press in a headline that topped Google’s afternoon news roundup.  “[The recession] may be over,” wrote AP reporter Jeannine Aversa, “but you won't be hearing any cheers from the millions of Americans who are struggling to find a job. Or are worried about the ones they have. Or have lost their homes. Or are behind on the mortgage.”  Ms. Aversa even managed to extract the perfectly pithy quote from former communications worker Bob Johnson, who’s been looking for a job for more than three years: "Every single one of the individuals who wrote the report needs a serious reality check," he said.  Our sentiments exactly.  This story is destined to rank right up there in the annals of foolishness with Bush II’s declaration that the war was over in Iraq, and with official estimates that more than 74% of the oil spilled in the Gulf had either evaporated, dispersed or been absorbed. So what does the NBER have to gain by making themselves look like dummies in the eyes of tens of millions of Americans who are either unemployed, underemployed, or working harder than ever just to stay afloat? We  can only speculate that the eggheads who compile NBER’s statistics got bored and decided to go out on a limb just for the hell of it. The bureau’s economists, who come from academia, business and trade unions, have been tracking recessions for the U.S. government since 1910. They are the official arbiters of when each recession has begun and ended, and perhaps

Leave it to the Wall Street Journal to wax enthusiastic over a perpetual-motion machine for the U.S. economy that in reality can no more exist than a unicorn. Here’s the headline, proffered by the Journal under the dubious title “Economic insight and analysis” and written by one Alex Frangos:  “Don’t Worry About China – Japan Will Finance U.S. Debt”.  Frangos notes that Japan has stepped up its buying of U.S. Treasurys, as indeed it has, in order to slow the rise of its own currency.  This is a crucial task for Japan Inc., since even a relatively small increase in the value of the yen can wipe out a competitive advantage that its exporters have worked hard for decades to achieve.  The damage has already occurred to a significant extent, since the yen has rallied 15 percent since May. However, Japan’s most recent interventions have been so aggressive as to suggest the goal is to scare yen buyers out of the market for a long while.  We have our doubts this tactic can succeed, especially since China has become one of the yen’s biggest buyers, but for the time being it has driven the yen sharply lower. The crazy idea here is not merely that stepped-up Japanese purchases of U.S. Treasury paper will somehow take up the slack now that China has begun to aggressively diversify its $2.5 trillion reserves away from the dollar. What Frangos is suggesting is that China’s move out of dollars will stir up strong new demand for greenbacks among China’s major trading partners, all of whom will supposedly be more eager than ever to keep their currencies cheap relative to the dollar. Under this scenario, countries such as South Korea, for one, will be so vigilant about preventing the Chinese from gaining a further currency edge that

(One of the sharpest investors we know, a local financial advisor who is also a close friend and collaborator of economist David Rosenberg, thinks the housing market is nowhere near a bottom. In the essay below, one of several we have presented by the same author, he amply supports his thesis, pausing along the way to draw an insight from the Kodak Super 8 movies that his grandfather used to run in reverse.  RA) Over the last few weeks there have been a larger number of articles written about the housing market. The increased volume is probably attributable to recent data showing that home sales have dropped off sharply since the Home Buyer Credits expired. In addition, we are witnessing increasing foreclosures and a general lack of success in mortgage modification efforts. Certainly economic recovery and housing market recovery go hand in hand, so the spin on housing has tended toward the affirmative in most analysis. Most articles place an emphasis on affordability, which is at or near record levels by most measures, as the primary reason for optimism. The primary deterrents to a more robust turnaround (in addition to the unemployment dilemma) are typically identified as more stringent underwriting conditions and a deflationary mindset among qualified buyers, causing them to hold off on making offers. What seems to be missing in the analysis is the obvious fact that the overwhelming majority of potential homebuyers also have one to sell. While that has typically been the case, there are several factors that make it substantially more critical to market dynamics now than it has been in the past. When we were experiencing a secular bull market in real estate combined with a secular credit expansion, having a home to sell was an enormous positive because the capital gain on the

We should know soon whether the animal spirits that pushed gold and silver sharply higher yesterday can withstand the endorsement of James Cramer.  Although we seldom watch his show – even with the TV off, you can practically hear him shouting within a ten-mile radius of CNBC’s Fort Lee studio -- someone mentioned in the Rick’s Picks chat room yesterday that he’s hot to acquire gold and precious-metal shares. Never too late, we suppose, but we somehow doubt he was so keen on the stuff ten years ago, when an ounce of bullion was selling for about a fifth its current price. Is it too late to jump on the bullish bandwagon even though Cramer’s doing it?  Not at all.  In fact, so certain are we that an ounce of gold will trade above $1400 by year’s end that we promise to don a grass skirt and dance the hula in Times Square in the middle of winter if we’re wrong. (Oh, right, we’re already doing that because Goldman shares failed to fall to a $29 target we were equally certain about. What could we have been thinking? So foolish to have bet against a company that, through interlocking directorates, owns a majority stake in the U.S. Government.) You don’t need to be a technical analyst these days to discern that precious-metal quotes want to go higher.  Silver in particular has gone marauding despite the best efforts of the bad guys to hold it down. We had alerted subscribers Monday night to the possibility of a price surge that would lift gold as well when we wrote as follows: “Silver has been showing more energy than Gold lately, a fact that has been reflected in [our] enthusiastic Silver touts over the last couple of weeks.  Late Monday night, the futures were

End-of-summer travel delayed this report on Premium Exploration (TSX symbol: PEM) by a week, although we did issue an informal “buy” recommendation on the junior miner in the Rick’s Picks chat room a couple of weeks ago.  The Canadian-listed stock was trading for around 45 cents a share at the time but has since moved up as high as 57 cents, where it closed yesterday. Based on technical analysis, we’re projecting upside potential over the near term to 64 cents, or perhaps 67 cents if any higher. These projections have a horizon of about 2-3 weeks, but there are longer-term forces at work that augur still higher prices. Stock charts aside, we rate Premium’s shares a high-potential speculative bet for the long-term. The company is well managed under CEO Del Steiner, and its Idaho site has yielded some very impressive core samples so far: 5.75 grams per metric tonne (g/t) over 76 meters, 3.65 g/t over 74 meters, and more than 9 g/t over 25 meters.  Moreover, the larger structure from which these samples were taken is mostly unexplored. The Central Idaho gold region has already produced more than four million ounces of gold from mostly placer projects, but Premium’s site could conceivably double that figure over time. One reason investors are especially excited about the Orogrande fault zone is that it is geologically similar to Nevada’s Carlin Trend, which has produced more gold than any other mining district in the U.S. Spreading the Word We toured Premium’s central Idaho site on August 25 as guests of the company in an entourage that included such seasoned veterans of the precious metals world as radio host Al Korelin, Roger Wiegand, Sean Brodrick, Marshall Berol and Dan Pisenti.  All came away sufficiently impressed by Premium’s operations, most particularly at Friday-Petsite, to have