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Synchronous Highs: Gold, Silver, And the S&P 500
General Electric: A Higher Rated, Higher Yielding Bond to Consider
Investment Rarities-free sae
Made my first GSR trade on Saturday
Weekender: Gold is a Credit Default Swap
The scramble for physical metal intensifies
Trading Comments, 4 December 2010 (posted 21h30 CET):
The Mathematics of Persistence
JP Morgan Silver Manipulation Explained

Synchronous Highs: Gold, Silver, And the S&P 500

Posted: 05 Dec 2010 01:50 AM PST

Dr. Duru submits:

The week ended with the S&P 500, SLV (a silver ETF), and GLD (a gold ETF) all approaching former 52-week highs. The U.S. dollar dropped 1.3% on Friday, decisively failing at resistance at its 200-day moving average (DMA) and putting an exclamation point on the week’s action.

The S&P 500 broke through its last battle lines in convincing fashion. As I claimed when I drew these lines, such a breakout suggests not only a retest of the 52-week highs but a sustained move past that high. Light holiday season volumes and the apparent waning will of sellers and shorts should put some wind beneath the market’s wings.

Complete Story »

General Electric: A Higher Rated, Higher Yielding Bond to Consider

Posted: 05 Dec 2010 01:10 AM PST

Randy Durig submits:

GE Capital yielding 6.7%, maturing on 09/01/2014 with Australian Dollar

Fixed income investors in the United States of America have found it difficult to find bonds that offer attractive yields. Durig Capital has found some foreign bonds that offer investors a significantly higher yield with a shorter maturity that we are offering to our clients. These bonds also include desired diversification benefits that could help reduce client's risks against the potential continued decline of the value of the US dollar.

This General Electric (GE) Corporate bond is denominated in Australian dollars. Most of our clients who have invested in foreign debt have seen both principals increase while enjoying higher yields, due to the continued decline of the US dollar. There are no guarantees that the US dollar will break its muiti-year trend, but as for America’s continued struggles with controlling debt and spending proper global income, diversification could help you to reduce this risk.

General Electric is a well known US based corporation with an high AA/Aa credit rating. Earnings before interests and tax has been around two times coverage, meaning that they generate enough income to pay interest expenses two times over. This higher rated, higher yielding bond should be considered in your fixed income portfolio.

A quick comparison of Australian and US government bonds for General Electric:

Complete Story »

Investment Rarities-free sae

Posted: 05 Dec 2010 12:01 AM PST

Recieved card yesterday says....Your Invited to recieve a complimentary sae free of charge. We believe that silver offers such a great opportunity that we will give you a valuable one ounce silver eagle if you agree to read our free report on silver "siver unleashed". They want me to return a card with my information & a promise that I will read there 12 page report "silver unleashed". Limited offer 1 coin per household.

I've recieved cold calls from IR over the years trying to sell pms to me but have never bought anything.

Anybody else get this card? may send it back today for a free sae but I hate getting called all the time & pesterd.

Made my first GSR trade on Saturday

Posted: 04 Dec 2010 11:17 PM PST

After giviing it some serious thought, I went and made my first ratio trade. It garnered me my first full oz Krand. Talk about that first time feeeling!!!!

Anyhow, the details were that I gave up $2.50 FV in 40% halves and $1 FV of 90% halves that I collected in half hearted prospecting attempt recently. I then added 49 triple nine generic rounds. So by my math, I got the deal done for right at 50.5 oz of Ag for an oz Au.

Weekender: Gold is a Credit Default Swap

Posted: 04 Dec 2010 07:12 PM PST

Gold is the ultimate Credit Default Swap. It's meltdown insurance taken out against Federal Reserve Inc. and the global financial system at large. And the best part is, with this CDS you never have to worry about your counterparty.

That simple observation is a worthy retort to all those who yammer on about how "gold has no intrinsic value"… how gold is worthless because "it offers no yield, no return on investment" and so on.

When was the last time you heard someone complaining about the fire insurance policy on their house — the fact that it "offered no yield" etcetera?

When it comes to insurance, yield isn't the point…

There is a speculative component too, of course. You can make a ton of money buying fire insurance on houses you don't own. John Paulson taught us that, via his multi-billion-dollar CDS score when the housing bubble turned to bust.

The CDS analogy also applies in that you don't need armageddon to turn a profit. A company (or a country for that matter) doesn't need to implode for long CDS to pay off.

All we need to see is a rise in the perceived risk of default — an increase in the statistical probability, however small, that the worst-case scenario could occur.

And this of course explains why the financial establishment hates gold. Ben Bernanke is the CEO of Federal Reserve Inc., and gold is a CDS bet that the organization is flailing and management has lost control.

Let's keep exploring this parallel. Apart from the recent cycle, when was the last big heyday for gold? The mid to late 1970s — no coincidence the Fed had lost control then too.

(By the way, did you know there was a massive housing bubble in the 1970s, on a scale to rival the latest one?)

Those who pooh-pooh gold do so on the basis of knee-jerk historical recency bias. They point to the extended doldrums of the post-1980 period as evidence of how worthless the yellow metal is.

Reaching into their memory banks and bringing forth the good times of the Reagan-Bush-Clinton years, they mistake a roughly 20-year historical time window for a permanent state of affairs.

Yet once again, the CDS analogy — gold as a bet against Federal Reserve Inc. — sheds light on this mistake.

Not to put too fine a point on it, Fed Chairman Paul Volcker was "the man." He helped the Fed get its shit together in the late 70s / early 80s. His ability and willingness to do that laid the groundwork for the long period of increasingly leveraged prosperity that followed.

So it's no wonder that gold went into dormancy after "Tall Paul" broke the back of inflation. Through the actions of an extraordinary leader, the financial system cleansed itself of excess and facilitated a path to healing — exactly the type of environment in which a CDS "meltdown" bet would peak out and decline.

But that was then and this is now. Today we're on the far side of the leverage and debt supercycle, with unaddressed problems mounting and no competent leadership in sight.

Question: You see any "cleansing of excess" going on in 2010? I don't. I see a bunch of theory-drunk gamblers (disguised as academics) hooked on double-down martingale strategy.

"If this desperation bet doesn't work, we'll just up the size of the next one…"

As a side note, it's instructive to recall that Volcker was exactly what a Fed Chairman (and perhaps a CEO) should be. Gruff, hard-nosed, determined. A loner type, not a flesh-pressing people-pleaser. Someone who could stoically sit back and take it when outraged homebuilders, crushed by interest rate hikes, started sending 2×4 planks to Volcker's office with hate notes attached. Someone with the testicular fortitude to do what needed to be done in the face of deafening public outcry.

Volcker, in other words, stands in direct and nearly absolute contrast to that lily-livered, mealy-mouthed, glad-handing cheerleader pantywaist, Alan Greenspan.

When "the Maestro" dared to utter the words "irrational exuberance" in the mid-1990s, the political fallout from a swooning stock market scared him so badly he might as well have had his spine surgically removed the very next day. Mr. "I just want to be loved" never again challenged the bullish orthodoxy after that. (Or at least, not until he retired and started craving missed attention…)

And now we have Ben Bernanke, a cowed academic after Greenspan's own heart. We recently saw the full extent to which "the Ben Bernank" would go to please all manner of masters, and gold surged on the reveal.

The Fed's solution — MOAR STIMULUS! MOAR PRINT! MOAR! — would be hilarious were it not so tragic. (Come to think of it, it's darkly hilarious anyway.)

Thus gold, the ultimate CDS, remains a powerful insurance bet that Federal Reserve Inc., under Keystone Cops management, has screwed things up badly and is in danger of making things worse.

And of course, if you like gold, it's hard not to like gold stocks…

The scramble for physical metal intensifies

Posted: 04 Dec 2010 01:57 PM PST

The scramble for physical metal intensifies FGMR by James Turk

December 4, 2010 – The scramble for physical gold and silver is intensifying. People increasingly want to own the real thing, and not some paper substitute, all of which come with counterparty risk. This conclusion is apparent from the following two charts of gold and silver forwards, which are based on data made available by the London Bullion Market Association through November 24th (the most recent data available). Because gold is money, gold almost always trades in contango, meaning the future price is higher than the spot price. The percentage difference between gold's spot and future price is gold's interest rate, so in this regard, gold is not different from other moneys, except gold's interest rate is lower than those of national currencies. Interest rates are a reflection of risk, and because gold's purchasing power cannot be debased by central bank or government actions, the risk of losing purchasing power when holding gold is low. So gold is rewarded by the market with a low interest rate. If the future price is lower than spot, which is called backwardation, you can sell your metal in the spot market, invest the dollars you receive to earn interest, and then buy your metal back in the future at a lower price and profit the difference. But there is another important factor to consider outside the math of this formula. If you sell your physical metal in the spot market and at the same time agree with someone to buy it back at a future date, you are now holding someone's paper promise instead of physical metal. In other words, you have counterparty risk, which of course is avoided when you own a tangible asset like physical gold or physical silver. Normally, few people worry about counterparty risk. So bullion dealers and other institutions dealing in the precious metals watch for opportunities to profit from backwardation, with the result that gold rarely, if ever, trades in backwardation, which explains why the above chart is so extraordinary. Gold for 1-month and 3-months forward has been mainly in backwardation for more than one year. Even more exceptional is that gold 6-months forward has been in backwardation since November 5th. To show how rare this event is, I checked the LBMA database, which goes back to 1989. There is not one instance of 6-month forward gold being in backwardation, which nearly confirms my own experience. I've been trading the precious metals since the 1970s, and I can't recall any time before this year when 6-months forward gold was in backwardation. The current and continuing backwardation is truly incredible. Note too the clear downtrend in 12-month forward gold which is approaching backwardation, which is similar to the downtrends for other forward periods. These downtrends make clear that the demand for physical gold is intensifying. The picture is even starker in silver. Not only are its forwards also in clear downtrends, silver 6-months forward has been continuously in backwardation since June 2nd and mainly in backwardation for more than one year. What does it all mean? In a word, it is bullish. The only way the increasing demand for physical metal can be met is with higher prices. The higher price will at some level entice people to sell their metal and hold a national currency instead, as I explained in my previous article, The Precious Metals Power Higher. Some skeptics may argue that gold is in backwardation because dollar interest rates are so low, which does have an element of truth to it. This argument though ignores that dollar rates have been low since shortly after the Lehman collapse, which is months before the backwardation began to appear. Also when the Greenspan-led Fed lowered dollar interest rates after 9-11 to near-zero levels, no backwardation appeared. Skeptics might also argue that there is no backwardation apparent from Comex settlement prices. Aside from the fact that Comex recently changed the method to determine settlement prices from a market-driven basis to instead allow a manual override, which now makes backwardation on the posted Comex settlement prices virtually impossible, one has to first recognize that Comex is first and foremost a market for paper-gold and paper-silver. Therefore, a piece of paper can promise virtually anything, without regard to the underlying reality of how physical metal is actually trading. In other words, Comex shows March futures in contango, when they should in reality be in backwardation. Thus, if you are buying March silver or April gold futures, you are overpaying. This overpayment is no doubt going into the pockets of those banks that are perennially short and use their size to control the paper market. They can, after all, always conjure up whatever paper they want out of thin air, which of course they cannot do with physical metal. Any way you look at it, the backwardation in gold and silver is a truly rare event and an exceptionally bullish one too. So be prepared for an upside explosion in the price of both precious metals as the scramble for physical metal intensifies even further as a result of people increasingly choosing to hold a safe-haven tangible asset instead of paper.

http://www.fgmr.com/scramble-for-phy...tensifies.html

Trading Comments, 4 December 2010 (posted 21h30 CET):

Posted: 04 Dec 2010 06:15 AM PST

The strong close in New York on Friday bodes well for this coming week. New highs in silver followed within a day or two by new highs gold are likely, as I explained recently in an interview on

The Mathematics of Persistence

Posted: 03 Dec 2010 01:09 AM PST

Many years ago (circa 2005), I came across the below food-for-thought piece from a musical theorist named Lee Humphries. The ideas presented intrigue to this day.

Investment assumptions aside — An 8.5% passive return? Good luck with that — the concepts of compounding and Metcalfe's law (aka network effects) apply strikingly well to the development of expert knowledge… and the theory and practice of trading.

What's more, a persistently cultivated "perception of subtleties" is, indeed, a large part of what trading is all about.

So without further ado…

The Mathematics of Persistence

By Lee Humphries

Everyone is born with an empty wallet and no skill. Yet some go on to acquire means and expertise. How likely is that?

Your prospects for a quick financial windfall are not good. Accounting fraud—once a popular approach to fast cash—has fallen on hard times as escalating legal costs and prison sentences erode its benefits.

Inheritance has never been reliable: There are far fewer wealthy relatives than willing heirs, and the ones that exist have a selfish fixation on their own longevity. Powerball is a sucker's game. Imagine a string stretched from Owatonna, MN to Orlando, FL. A one-inch segment represents your odds of hitting the jackpot; the remainder, your odds of continuing your present lifestyle.

If your chance of instant riches is minuscule, your chance of instant expertise is zero: Nobody acquires skill in a day. Still, for those who persist, the long-term prospects are good. Both money and knowledge can compound over time.

To understand the compounding of money, consider a "five-dollar" experiment. Each week put five bucks in a cookie jar. Once a year, pull out $260 and invest it at 8.5% (a reasonable market return over the long haul). Do this year after year.

You'll need a dozen years to build up your first $5000—that's quite a while—but you'll need only six additional years to accumulate your next $5000. You'll have your third $5000 in another four years, and your fourth $5000 in just three more. In the early stages of compounding, gains are meager. Significant gains don't occur until later. But once they appear, they start to snowball.

How about becoming an expert? Within their areas of competence, experts have many more categories of awareness than novices. The perception of subtleties is what Michael Jordan, Warren Buffett, and Yo-Yo Ma have in common. Not only have experts gathered many "elemental" facts about their field; they have linked them to one another to produce a vast array of "relational" facts.

In simplest terms, a relational fact is the knowledge gained when you combine two elemental facts. To picture this, draw two dots and connect them with a line. The dots represent elemental facts; the line, a relational fact.

Add new dots, connecting each to all the others. With three dots, you'll have three connecting lines. With four dots, six lines. With five dots, ten; etc. Every new dot compounds the number of connecting lines. Likewise, every new piece of information compounds the pool of available relationships.

With a knowledge base of one hundred elemental facts, you have at your disposal about 5000 potential connections. Double your knowledge base and you will increase the potential connections to nearly 20,000. Learn a thousand things and the potential connections approach half a million.

It is these latent relationships that the mind processes in its search for insight. The processing is autonomous and subliminal, but you can encourage it. Each day use your powers of observation and reasoning to learn some new thing about your field. Reflect on its connection to what you already know. Reflection compounds knowledge.

With a sufficient knowledge base, you can start to build a portfolio of noteworthy work—problems solved, know-how acquired and applied. To the extent that your growing portfolio is valued by others, your income is likely to increase. This, in turn, can accelerate the growth of your financial base.

The power of dollars and of facts is collective, not individual. Before either can generate really large returns they must reach a critical mass. Mass grows as the accumulating returns on your past efforts are enhanced by the on-going contributions of your new efforts—in short, as you persist.

There is no persistence without discipline. But self-coercion is fools' discipline. A devitalizing force at heart, it will eventually burn you out. Far better are the attractive forces of love, desire, and fascination. These are rejuvenating; their objects, energizing. The wise recognize this and harness them to travel to the City of Good Luck.