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• Digging Up 3 Cheap Mining Stocks For Cold Hard Profits
• Silver History: The Hunt Brothers
• Money Supply and Purchasing Power
• The Silver Bullet And The Silver Shield
• The “Five M’s” For Picking Gold Stocks
• Have Labour Will Travel
• Exposing Silver Mythology, Part I
• Silver Eagles
• Sunken Coins Bound For Spain After Legal Battle

Digging Up 3 Cheap Mining Stocks For Cold Hard Profits Posted: 26 Feb 2012 03:21 AM PST By Hedgephone: By Nicholas Southwick Levis While Iron Ore prices are a much debated hot button issue for investors, I expect the price of almost every commodity out there to rise over the long term, even iron ore, with all of the capacity related issues the industry faces. While The following stocks are primarily supplying steel companies and are economically sensitive, these names are cheap enough for investors to hold onto even with the economic headwinds they face. As for gold and silver mining, we expect the stocks with the highest reserves/market cap ratios to outperform, and we are especially bullish on mining stocks that have large reserves and positive free cash flows. Vale (VALE) - At 5.8X earnings, Vale is a value here in my opinion, and the stock is simply too cheap to ignore. Given the constant erosion of paper wealth over time, investors should consider mining stocks like VALE, Complete Story »

Silver History: The Hunt Brothers Posted: 25 Feb 2012 11:18 PM PST Chris Duane of Don't Tread On Me articulates the "real" Hunt Brothers silver story. from TruthNeverTold: Part One Part Two ~TVR

Money Supply and Purchasing Power Posted: 25 Feb 2012 05:30 PM PST Dollar Daze

The Silver Bullet And The Silver Shield Posted: 25 Feb 2012 05:15 PM PST

The “Five M’s” For Picking Gold Stocks Posted: 25 Feb 2012 04:45 PM PST Goldseek

Have Labour Will Travel Posted: 25 Feb 2012 09:50 AM PST By Sell on News of Macrobusiness, a macro equities analyst. Cross posted from MacroBusiness. We cannot say we were not warned. Many commentators about globalisation said that it would create an imbalance between labour and capital, for the simple reason that capital is free to move wherever it wants, and labour, except at the very top end, is not. And so it is turning out, with the middle classes of much of the developed world under extreme pressure, and shrinking. There has been some rise of a middle class in the emerging economies, but it is nowhere near enough to compensate for the loss of demand in developed markets. In many respects, the US housing and debt crisis was the last gasp for a significant slice of the middle class in America after decades of declining real wages. They borrowed to keep themselves at that level, and of course it could not last. Europe's middle class is under extreme pressure and so is Japan's. That much is well known. What I think is less examined is the way that economic measurements influences the formulating of government policies to deal with the economic and social implications. One of the effects of globalisation is that labour is the government's responsibility. Capital has no responsibility except to itself, and can for the most part push governments around. Put another way, labour remains a problem of the nation state whilst capital has transcended the nation state. Maintaining employment, looking after labour, is not just a key to political survival of any democratic government, it is key to attracting the blessing of the capital markets. Strong employment (and tax collection) is key to keeping government deficits under control, without which the punishment of the capital markets is usually brutal. So governments in developed economies are caught in a vice. To keep the work force in employment, the workers have to be able to compete with much cheaper labour forces in the emerging world. If they try to compete on price, it leads to a Catch 22 — to keep the nation's standard of living up you have to cut workers' standard of living. Doesn't quite work, really. There is always the possibility of investing heavily in areas like infrastructure or education — but this, if done aggressively, will blow out government expenditure and create unsustainable deficits that lead to the punishment of the capital markets. Another Catch 22. There are some exceptions. The US gets a free pass on deficits because the US dollar is the reserve currency of the world; no other country with open capital markets could get away with racking up so much debt. Although it cannot be indefinite, of course. And Japan is hermetically sealed, it has blocked out the international capital markets for the most part. That, too, will eventually have a big economic cost, indeed it already has. But for most countries, including Australia, that is the conundrum they are presented with. The most attractive durable solution is to become like Germany, whose industrial habits and structures give it an exceptional ability to maintain competitiveness. Trouble is, it is very German — not easily replicated by anyone else. Or they can pursue a mercantile route like Korea, but this is deemed to be against the economic orthodoxy; sullying the purity of price signals. This leads me to my complaint about how economic analyses work. One problem is that economics only records a score, it is not suitable for developing strategy. And the scoring tends to be always pretty much the same — labour is too expensive and must be driven down; any form of government assistance is harmful to consumers. Policy makers must, essentially, have no policy other than to let the markets work. That is, let capital find its most profitable destination. Which for the most part inexorably leads to lower wages for much of the middle class. Another problem with economic analyses is the persistent use of circular arguments. The key badge of honour of economists, to use Paul Krugman's phrase, is David Ricardo's doctrine of comparative advantage. This argument for specialisation — high wage countries specialise in high wage tasks and low wage countries do the low wage tasks and both sides benefit — is a circular argument. It says that if countries transact more, then there will be more transactions per head. Hard to argue with, as most tautologies are. But it assumes that there is a neat transfer and it is far from automatic. Labour in high wage countries will obviously come under pressure from labour in low wage countries if there is only a finite amount of employment. In an environment of global over supply (over supply that is a function of the lack of a big enough middle class in emerging economies and also of huge technological advances), there is obviously going to be pressure on the number of jobs. The result is obvious to see in the auto industry, where car makers shop around the world to get the best subsidies from governments confident that there is an excess of labour. Economics, in other words, is heavily biased towards the interests of capital, hardly surprising given that it is basically a record of transactions and capital flows. If capital is looked after then consumers will be fine and labour is, well, somewhere in the rear. The problem with the bias is that economic systems are whole systems. As Philip Coggan points out in this excellent talk, there is a long history of the inter-relationship between debtors and creditors, a swinging balance. There is also a long history of the relationship between capital and labour. When capital markets were largely national, there was an obvious interrelationship between wages and the consumer demand on which decent returns for capital investment depended. Pay the workers well and they would buy the stuff you made. But now, capital is global and the investment is global. That relationship has been destroyed, leaving governments to pick up the peieces. It is not just the case that the finance sector has privatised the profits and socialised the losses. The finance sector has profoundly altered the interdependency of the system on which they, and everyone in developed economies, ultimately depend.

Exposing Silver Mythology, Part I Posted: 25 Feb 2012 06:58 AM PST Exposing Silver Mythology, Part I January 24th, 2012 Originally appeared at http://www.bullionbullscanada.com/in...ary&Itemid=130 Advanced economic analysis involves high-level mathematics at least as complex as the realms of physics or engineering, accompanied by equally convoluted jargon. As a result, it is virtually incomprehensible to the ordinary person. Conversely, the basic principles of economics are very straightforward. Indeed they could be summarized as little more than a combination of common sense and simple arithmetic. As a result, fundamental economic analysis is highly accessible to the ordinary person – because of its relative simplicity. What then are we to make of the fact that the self-described (mainstream) "experts" on the silver market; the quasi-official sources for data on the silver market; and the primary regulator of the silver market all regularly and consistently demonstrate complete ignorance of even the most elementary of economic principles? Are we to attribute this to gross incompetence, inherent bias, or an intentional attempt to deceive? I will leave it up to readers to reach their own conclusions. This piece will simply lay out the positions of these individuals and entities (past and present), lay out what little reliable data is available to us; and then apply the simple, common sense principles of economics to this data. It will focus on the three most basic aspects of any market: supply, demand, and inventories. First, however, I will refer readers to some previous, elementary economic analysis. As I established with simple numbers (and logic), in any market shorting always "consumes" while investing always "conserves". In other words, in any market which is dominated by shorting we will see a substantial increase in consumption, and (over time) a radical decline in inventories/stockpiles. On the other hand, in any market dominated by investors (who are invariably mis-labeled as "speculators"), we will see consumption decline and inventories swell – due to the rising prices generated by increased investor-buying. Meanwhile, the entities/individuals mentioned previously do not merely regularly engage in analysis which is wildly erroneous, but in many cases is totally perverse. It is with respect to this last point where it becomes more difficult to ascribe this behavior to mere incompetence and rather more likely that there is some degree of malice involved. In order to show how the inaccuracy of this analysis is not only extreme but consistent, I will refer primarily to the most up-to-date opinions on the silver market today; along with an "open letter" from the CFTC from 2004, and the GFMS "World Silver Survey 2003" – which primarily covers developments in the silver market during 2002, one decade ago. Readers must first understand that there are two ways of characterizing "supply and demand". It can be described as current orders versus total stocks, or it can be described in terms of production versus consumption. It is the latter definition which is exclusively taught in our educational institutions, and for a very good reason: it is only by examining supply and demand in terms of production versus consumption where we can obtain any useful information about the future direction of any market. Conversely, the mainstream "experts", the CFTC, and the quasi-official record-keepers for the silver market never use the latter definition. Instead, they always use the much less useful former characterization – and then reach one absurd conclusion after another through relying upon this inherently flawed data. Why is production versus consumption the only valid basis for analyzing supply and demand? Obviously the entire purpose of analyzing any market is to determine whether it is in balance, or whether it is out of balance – either through over-supply or excess demand (in order to correctly price the market). Examining production versus consumption data instantly provides us with the answer to that question. Noted silver researcher Ted Butler has concluded that the silver market has been out of balance (in the form of excess demand) for more than fifty years, with total global stockpiles of silver declining by well in excess of 80% over that period. More recently, data supplied by the other quasi-official source of data for the silver market (the CME Group) shows that silver inventories plummeted by approximately 90% just from 1990 through 2005 – during which time the price of silver fell to a 600-year low (in real dollars). Attachment 15817 Simply, every year (for as far back as reliable data exists) production (i.e. mine supply) has been exceeded by demand, and generally by a huge margin. It is the most elementary principle of markets (and arithmetic) that no market can remain out of balance forever, and in particular any market experiencing excess demand must reverse itself (at the very latest) when inventories reach zero. Irrespective of whether we are referring to excess supply or excess demand, there is only one market mechanism which can ever correct imbalances: price. Where there is excess demand, prices must rise long enough and high enough to cool demand and stimulate supply until (at the very least) balance is restored. Where there is excess supply, the reverse must take place. By definition, every year, decade after decade, silver prices have been "too low" because every year excess demand (and a supply-deficit) remains in this market. This utterly unequivocal pattern means that silver prices have been artificially too low year-after-year, decade-after-decade since such extreme and relentless destruction of inventories and stockpiles, over a very, very long time horizon cannot plausibly be considered a "natural occurrence". Yet this is what GFMS had to say about the silver market of 2002, with silver prices hovering near their 600-year low: …this mix of supply/demand factors means silver is unlikely to move substantially outside of its 2002 trading range. GFMS reaches this conclusion despite immediately noting afterward that: …this annual average [price], however, remains low historically; excluding 2002, the last time the average price was lower than 2002's was in 1993. [at the 600-year low] We have a market which has perennially been seriously out of balance, and where that balance can only be restored by substantially higher prices. And yet with prices near the 600-year low, we have the quasi-official record-keeper for the sector saying that prices are just fine. Incompetence? Bias? Deliberate deception? Further discrediting GFMS, in that same report it notes that: …it appears silver output will fall again in 2003 as base metals producers are forecast to further scale back their operations and little new additional capacity is scheduled to come on stream. With silver mining already extremely depressed by the 600-year low in price, with inventories already having plummeted by more than 75% over the preceding 12 years, and with GFMS itself predicting that production will fall (again) in the upcoming year, it still concludes that prices are just fine. This is not "economic analysis", it's "creative writing" (i.e. fiction). There is only one source of "new silver" in the entire world: mine production. Any/every other ounce of silver which comes onto the market represents a draw-down of inventories/stockpiles. By definition, this is absolutely unsustainable as inventories are finite and (obviously) can never go below zero. Attachment 15818 As we see in the chart above, every year production (i.e. mine supply) has been exceeded by consumption, with the supply-deficit exceeding mine production by greater than 35% every year, and generally by well over 40%. This can never be more than partially offset by "recycling", as unlike the gold market, every year hundreds of millions of ounces of silver are literally "consumed" – used in industrial applications, but not recycled. In other words, this is not a market which is merely "slightly" out of balance, but rather one which has been in extreme imbalance every year – with that supply-deficit made up out of plummeting inventories. Yet here we have the other quasi-official record-keeper for the sector (the CPM Group) claiming that since 2005 silver inventories have not only reversed themselves, but have roughly quadrupled over that period of time. How does the CPM Group reach a conclusion which is 100% contradicted by the data of its bookend, GFMS? The chart below provides the answer, when it notes that "inventories include silver backed exchange traded funds." Attachment 15819 These funds represent out-flows of silver. When I go to a silver dealer to buy an ounce of silver, every ounce I purchase decreases inventories by one ounce. Yet in the fantasy-world in which the CPM Group dwells, when someone purchases an ounce of SLV (a privately-owned fund) inventories somehow increase. This is utterly perverse. There are only two scenarios in which the data presented in the chart above could be transformed into something rational: 1) SLV unit-holders are digging their own silver out of the ground (and refining it). 2) Each ounce of silver which SLV unit-holders purchase, and which is purportedly being held for them by that kind and benevolent Oligarch, JP Morgan, is in fact sitting in JP Morgan's vault with a "for sale" sign attached – available to anyone willing to ante-up the current spot-price of $30/oz. We know that SLV-holders are not digging/refining their own silver. So unless we conclude that JP Morgan is simply pretending to hold silver for those unit-holders (and is actually, secretly selling it off), we have the CPM Group portraying out-flows as in-flows. Incompetence? Bias? Deliberate deception? Amazingly, the apparent inability to correctly understand and apply even the simplest principles of economics (and markets) extends to the regulatory body which presumes to possess the expertise to adjudicate in these market: the CFTC. In Part II, readers will get a large dose of déjà vu: a detailed examination of how the CFTC viewed the silver market back in 2004, and the extraordinary conclusions which it reached at that time. http://blog.ml-implode.com/2012/01/e...hology-part-i/ Attached Images 600yearsilverxx.gif‎ (33.6 KB) chart-2012-01-20.jpg‎ (127.7 KB) low-silver-inventories1.gif‎ (26.0 KB)

Silver Eagles Posted: 25 Feb 2012 06:18 AM PST Playing around with different photo techniques, this is sorta fun to set up, gives me an excuse to fondle them some. :love30:

Sunken Coins Bound For Spain After Legal Battle Posted: 25 Feb 2012 12:29 AM PST ¤ Yesterday in Gold and Silver In gold, the high of the day came about 9:20 a.m. in London... and from there the price declined in fits and starts for the rest of the trading day both there... and in New York later in the day. The gold price basically traded in a ten-dollar price range all of Friday. Nothing to see here, folks... please move along. Gold closed the day at $1,773.60 spot... down $6.50 on the day. Net volume was the lightest all week at 115,000 contracts... give or take. It was pretty much the same story in silver, with the high of the day coming at the same 9:20 a.m. time in London. Silver traded within two bits of the $35.50 spot price during the entire Friday trading day. The silver price closed on Friday at $35.41 spot...up a whole 4 cents. Gross volume was well over 90,000 contracts once again... but netted out to a pretty light 26,000 contracts once all the spread and roll-overs out of the March contract were removed. The dollar index rose a bit once it opened in the Far East on their Friday morning. The high of the day came around 1:20 p.m. Hong Kong time... and then spent almost twelve hours declining about 55 basis points. The index hit its low at precisely 1:00 p.m. in New York... and then proceeded to gain back a bit of that loss. The dollar index closed down about 42 basis points. This decline obviously didn't have much impact on gold and silver prices yesterday. The gold stocks pretty much followed the gold price tick for tick yesterday... and the HUI finished down 1.34% on the day. The HUI finished up 4.06% on the week. The silver stocks obviously suffered from a bout of profit-taking yesterday... and despite the fact that silver finished up a few pennies on the day, Nick Laird's Silver Sentiment Index also closed down 1.34%. I was eagerly looking forward to yesterday's CME Daily Delivery Report... and I was not disappointed nor surprised by what I saw. In gold, there were 154 contracts posted for delivery on Tuesday... and in silver, it was 180 contracts. Although there was no prize for getting it right, I was correct in assuming that Jefferies would be the big short/issuer and that the Bank of Nova Scotia and JPMorgan would be the big long/stoppers... but that's almost exactly what happened. Jefferies issued 177 contracts of the total... and the Bank of Nova Scotia received/stopped 176 of those contracts. The link to yesterday's Issuers and Stoppers Report, which is well worth checking out, is here. The CME's preliminary volume report for Friday showed that another 10 silver contracts were added to the February delivery month, bringing the total up to 185... of which 180 were delivered yesterday. Is there more to come? Beats me, but Jefferies et al. only have two more business days left to get it done, if there is. So far in February, there have been 946 silver contracts delivered... and we're now at almost 2,200 contracts delivered for January and February combined, which are huge numbers considering the fact that neither month is a delivery month for that particular precious metal. I'll have more to say on this issue in my February 29th column. With all this silver being delivered in these off months, one has to wonder what kinds of delivery numbers will be posted on First Day Notice in March silver next Tuesday evening. Gold and silver continued to pour into the two big ETFs yesterday. GLD received another 58,303 ounces from an authorized participant... and SLV took in another big chunk on Friday as well... 1,943,188 troy ounces... almost exactly the same amount as they added on Thursday. And, for the second day in a row, there was no sales report from the US Mint. It was another big day over at the Comex-approved depositories on Thursday. Between the Brink's and Delaware depositories, they received 1,125,475 troy ounces of silver... and Scotia Mocatta shipped out 1,250,725 ounces. The link to that action is here. It was another frantic week at these five depositories once again... and I'm sure that Ted Butler will have something to say about it in his comments to subscribers later today. I knew that I wouldn't be thrilled with yesterday's Commitment of Traders Report... and I wasn't. However, as Ted pointed out, the increase in the Commercial net short position could have been worse... but it was bad enough... and checked in with an increase of 1,878 contracts. Ted says that it was the '4 or less' traders in the Commercial category who were responsible for all of the increase. Which means that the lion's share of that amount was sold by JPMorgan in order to prevent the price from running away to the upside. The total Commercial net short position now sits at 39,188 contracts, or 195.9 million ounces. Based on my back-of-the-envelope calculation... and once you remove all the market-neutral spread trades... JPMorgan (all by themselves) is short a bit more than 25% of the entire Comex silver market. The Commercial traders have sold 25,000 silver contracts short (125 million paper ounces) since the late-December lows. One can only imagine what three-digit silver price we would have if JPMorgan et al. hadn't been there. But as bad as the COT was in silver, it was just plain ugly in gold, as the Commercial net short position rose an eye-watering 19,894 contracts... a hair under 2 million ounces. The Commercial net short position has now blown out to 22.9 million ounces. These are not extreme numbers (extreme is over 30 million ounces), but the danger flags are now flying. Without doubt, the situation has deteriorated a lot further since the Tuesday cutoff... as both Wednesday and Thursday were big up days. And as Ted pointed out on the phone yesterday, it's been the '4 or less' traders stepping in front of this market on the short side to prevent both gold and silver prices from blasting to the outer edges of the known universe. They are the short sellers of last resort. Here's Ted Butler's 'Days of World Production to Cover Short Positions' that Nick Laird produces every week. As you can see, the four precious metals are the most rigged markets on the Comex, with silver leading the pack by a goodly margin. You should also note that the largest and most concentrated short positions are held by the '4 or less' traders... and the tallest hog at the trough in all four metals is, without a doubt, JPMorgan. (Click on image to enlarge) Here's another chart that Nick Laird sent me last night that's worth looking at it. It's the "Total PMs Pool". As Nick mentioned in his covering email, "There are new highs in ounces... and soon-to-be new highs in value." (Click on image to enlarge) This next graph comes courtesy of South African reader Dave Toms. As he said in his email, "Note how we in South Arica are doing with the rand vs. gold. The graph is terrifying! " Yes, it is. But it's also a clarion call to own precious metals in the face of rapidly depreciating fiat currency. In the near future, a lot more countries will have currency charts that look like that. (Click on image to enlarge) I have the usual number of stories today, so I hope you'll find time over the weekend to at least skim the parts that I've cut and pasted on each one. Email Print I certainly was not amused with yesterday's Commitment of Traders Report... and I'm not likely to be enthralled with next Friday's report, either. Central Bank Buying Has Gold Shorts Trapped: Ben Davies. Now China is Venezuela's partner in developing Las Cristinas gold project. Ancient plants back to life after 30,000 frozen years. ¤ Critical Reads Subscribe SEC Joins Running for Worst Rogue Agency The alphabet-soup federal bureaucracies seem to be engaged in a contest to see who can do the most to steamroll the legitimate legislative process and compromise freedom and economic growth. To date it has been a neck-and-neck race between the EPA, which is pursuing a head-spinningly aggressive anti-energy and anti-development agenda, and the NLRB, which is rewriting federal labor laws to allow union bosses to force workers into unions and infamously sued Boeing for locating in a right-to-work state. Of course, the FDA, HHS, IRS, FCC, and the rest also have been in on the act. But the Securities and Exchange Commission (SEC) is now distinguishing itself as a new contender in the top tier of the worst rogue agencies. This story was posted over at the Fox News website yesterday...and I thank Washington state reader S.A. for bringing it to my attention. The link is here. View full GSD edition Stockton, California, May Ask Bondholders to "Suffer," City Officials Say Stockton, California, may take the first steps toward becoming the most populous US city to file for bankruptcy next week because of burdensome employee costs, excessive debt, and bookkeeping errors that misrepresented accounts, city officials said yesterday. The Stockton City Council will meet February 28 to consider a type of mediation that allows creditors to participate, the first move toward a Chapter 9 bankruptcy filing under a new state law. The council will also weigh suspending some payments on long-term debt of about $702 million, according to a 2010 financial statement. Stockton, a farming center about 80 miles (130 kilometers) east of San Francisco, has fought to avert bankruptcy by shrinking its payroll, including a quarter of the roughly 425-member police force. At 292,000, the city has more than twice as many residents as Vallejo, California, which became a national symbol for distressed municipal finance in 2008 when it sought protection from creditors. This Bloomberg story, posted on its website late last night, was sent to me by West Virginia reader Elliot Simon...and the link is here. View full GSD edition "America's Per Capita Government Debt Worse than Greece": Senator Jeff Sessions The office of Senator Jeff Sessions, ranking member on the Senate Budget Committee, sends along this chart, showing that America's per capita government debt is worse than Greece, as well as Ireland, Italy, France, Portugal, and Spain.   This chart was posted over at the weeklystandard.com website late yesterday morning...and I thank Phil Barlett for sending it along. The link is here. View full GSD edition Stop the Nonsense about the "Falling Dollar" Being the Cause of Rising Gasoline Prices I ran the Forbes story about this in Friday's column and then received the following story from reader Ian Nunn with the comment..."You chose to reference the Forbes article. Here's the analysis that debunks it." Mish Shedlock was underwhelmed by that Forbes article...and had this to say about it... Louis Woodhill, Forbes contributor says he applies "unconventional logic to economic issues". He proves it with this headline report Gasoline Prices Are Not Rising, the Dollar Is Falling Forget the "logic" and skip straight to reality. Mish's take on things was posted on his globaleconomicanalysis.blogspot.com website yesterday...and you can read all about it here. View full GSD edition David Rosenberg Presents the Six Pins that Can Pop the Complacency Bubble The record volatility and 400-point up-and-down days in the DJIA of last summer seem like a lifetime ago, having been replaced by a smooth, unperturbed, 45-degree-inclined sea of stock market appreciation, rising purely on the $2 trillion or so in liquidity pumped into global markets by the central printers, ever since Italy threatened to blow up the Ponzi last fall. In short – we have once again hit peak complacency. This item was posted over at the zerohedge.com website yesterday... and I thank Australian reader Wesley Legrand for sharing it with us. The link is here. View full GSD edition

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