For the week of Oct 6, 2011
ECONOMIC OVERVIEW
Tomorrow is Unemployment Friday. All eyes will be watching the report to see if any jobs get created. Remember last month? Not one job was created. As much as the analysts have talked this report down, I believe if the number fails to impress tomorrow, it will be a negative for the market. Let’s take a recap on the activity so far. The market resumed the weakness from last Friday and spiked to new lows on Tuesday. The S&P 500 took out the 1072.00 low, which was set back in Aug, by 4 points or $200.00 and hasn’t looked back. As of today, we are trading at around 1150 and that would be a 50% retracement from the highs/lows of this recent range. The market is so susceptible to the gyrations of the reports coming out of Europe that it is impossible to hold long-term positions in the equities. The range from Aug 8th to today has been 1225 to 1070. (Take a look at the chart below) During my daily train commute, I am always interested in hearing the chatter of the other commuters. Lately, the basic comments are that people are not spending like they used to and they are pulling money out of risky stock market positions. In general they are fed up with the shenanigans of our politicians and the ongoing stumbling of Europe. The best way to put it is that the main street is pissed off. The “Occupy Wall Street” movement has started to get some press even though the main stream news tries to keep it at a minimum. It would definitely help to galvanize their movement if they had some real structure to specific issues instead of the slogan “Down with the rich”.
It doesn’t help that the world as whole has become increasingly more confusing. I keep hearing new words for the same idea almost every day. For instance, the FOMC meeting last month produced a new/old plan called the “Operation Twist”. Basically the Fed will sell 400 billion of the shorter-term Treasury holdings and replace them with purchases of longer dated Treasuries in effort to flatten the yield curve. The hope was to inspire loan activity, but we think it’s all for not. I thought the Fed already stated it would keep interest rates at current levels until 2013?? The UK just issued news that it would be buying more bonds and then referred to using more Quantitative Easing? Hmmm, these two sound the same. That’s because they are, but the powers that be want the public to think it’s something different. Why, you ask? Because the longer they can keep us chasing our tail, the better the odds a miracle will happen or they can reduce the speed at which the second Great Financial Crisis takes place. Think about it, a crash in slow motion might not be as bad…right? Of course, there are always going to be differences in an opinion, but the real truth lies behind what is not being said.
As an added bonus to all this drama, Moody’s has decided to really do their job and started the downgrade movement. They downgraded the debt on three major banks, Citigroup, Wells Fargo and Bank of America. Moody’s suggested that the government may still support the banks, but that they are not opposed to letting them fail now that the fear of contagion has decreased. Bank of America has already had their share of troubles even if they didn’t want to initially admit it. On top of which, they are not making nice with their customers by instituting a new $5.00 monthly fee on debit cards. What’s the reasoning? It’s all that Dodd-Frank regulation. It’s the blame game over and over again. Moody’s has downgraded Italian debt plus other European debt and this is the second time that they have done so. Dexia, a Franco-Belgian lender, was in trouble with gripping liquidity strains at the start of the week. News that Dexia had the bad debt put into a bad bank guaranteed by the French and Belgian governments managed to stop the free fall in the markets. On top of all that the EU ministers have expressed their agreement to coordinate the recapitalization of financial institutions. It seems that there is always something that temporarily reverses the market from certain doom. Most of the news has been bad and the good news that emerges is really just comments from “the key players”, which at the end of the day shouldn’t really be believed until validated. Do we really think that a bank, a major corporation or the government is going to tell the American public the truth? I think we have been waiting for the truth for a long time. The financial landscape is definitely at a crossroads.
Now is the time to protect your portfolio with hedging techniques and risk management. Target levels and risk management are an important part of our trading model. This will allow for traders to manage positions accordingly with their level of risk exposure. We also participate in option based trades and they can be a viable substitute for the futures contract. Lower equity traders should consider options to help manage overnight risk. For more information on trading models and strategies, please feel free to contact my office at 312-264-4364 or email me at afranklin@pricegroup.com.
S&P ~ Weekly
Below is an article from my associate “The Silver Fox”, Dennis Eich.
Silver, Gorillas, Madoff and Financial Regulators –Will they ever learn?
One of the most uncomfortable facts surrounding the Bernie Madoff case was that he was allowed to continue operating for years despite all the evidence about this fraud being gift-wrapped and delivered(on more than one occasion) by Harry Markopolous to the SEC. Despite the clear evidence handed to them, the SEC looked the other way. Interestingly, and coincidentally, JPMorgan was a key player in the Madoff case, and this summer the Trustee in charge of liquidating Madoff’s firm sought $19bn in damages from JPMorgan, accusing the bank of being ‘an active enabler for the Madoff Ponzi scheme’. It is also widely known that JPMorgan has repeatedly been accused of manipulating Silver (and Gold) prices, and in light of the recent downdraft in Silver, I felt it would be pertinent to revisit the timeline and details of this ‘manipulation’ and the ‘investigation’ into it. There is an uncomfortable echo here with the Madoff case and it is also worth reiterating as background to this story that there is an ONGOING investigation at the CFTC into Silver manipulation.
For many years market observer Ted Butler had flagged up an anti-competitive degree of concentrated short interest within the structure of the Silver futures market and whole books of commentary and analysis have been dedicated to the subject. At that point, even though Mr. Butler had presented data to the CFTC (Commodities Futures Trading Commission), showing 1 or more commercial banks operating outside of speculative position limits, the claims of Silver manipulation were swiftly rebutted by the regulator with minimal explanation. In 2008, before Lehman Brothers went the way of the Dodo, Bear Stearns was acquired by JPMorgan for $10 a share, $2 a share having been refused by Bear Stearns shareholders a mere 24 hours earlier. As per the September 2011 class-action lawsuit (detail below) Bear Stearns massive Silver short position needed to be taken under the wing of another institution, because had Bear gone into Chapter 11 the unhedged Silver short position would have been unwound. The price effect of that unwinding would have been a dramatic move higher for Silver. Instead, JPMorgan took over this position and it has grown ever since into the 1000 lb Silverback (!) in a room of scary financial Gorillas that both the market and Regulator choose to ignore. JPMorgan also have (according to the most recent OCC derivatives report from the US Treasury) 80% of all registered Gold Derivatives on its books. No wonder the Dodd-Frank financial reform Bill demands tighter speculative limit enforcement, so far, however, the CFTC have failed to put this important legislation into practice in either Silver or Gold. In March of 2010 the CFTC held a public hearing into Silver Manipulation on the back of thousands of detailed complaints from industry professionals and individual investors. At that hearing a whistleblower with 30 years experience in Gold and Silver trading spoke out on the public record, using the Gold Anti-Trust Action Committee as a loudspeaker (the whistleblower was pointedly NOT invited to the hearing). He laid out the how’s and whys of Silver manipulation and indeed gave multiple examples of previous engineered sell-offs that were clearly telegraphed to the market using trading signals. The whistleblower had repeatedly shown the CFTC where the market would trade (and when) with an uncomfortable degree of accuracy. Since the Date of the hearing, May 20 2010, the CFTC investigation has apparently been ‘ongoing’ and yet they have not made a single move to enforce or even attempt to deal with the evidence gift-wrapped and delivered to them. Fast forward a year from the original CFTC public hearing and the Dodd-Frank Financial Reform Act came into play. Within this act new (lower) speculative position limits were proposed and the CFTC were given expanded powers to enforce these new limits, in order to restrict the sway of big financial institutions in commodities markets. Despite this, no new limits have yet been imposed; indeed the timetable for the CFTC to vote on new limits keeps being pushed back, as you will see as this timeline evolves. Post the Dodd-Frank Bill passing, the Silver market took a rapid 25% nosedive, displaying all the tell-tale signs of a manipulated sell-off as the price fell fastest in the thinnest trading hours (NOT the way to effect best execution) and was abetted by repeated margin hikes. Silver recovered well across the summer until we hit September, when the music from ‘The Twilight Zone’ started to be heard once more by Gold and Silver investors. In spite of a dreadful global currency and debt crisis (ostensibly bullish for Precious Metals) Silver proceeded to fall another 25%, bottoming out at $26/oz. This time the evidence of what really happened is as clear a case of regulatory malfeasance as that of the SEC in the Madoff case.
This is a quote from Jim Rogers on the economic outlook.
“If the world economy gets better I’m going to make money in commodities because of shortages that are developing, especially in agriculture and precious metals. If the world economy doesn’t get better, you’re not going to make any money in Toyota or IBM but you might make money in commodities because they’re going to print more money. It’s the wrong thing to do but they will print money. Bernanke is already printing money again. You have to protect yourself. I’m short stocks, but I don’t expect the world economy to get better. Not much better anyway; if it does and I am long commodities as a protection.” – Jim Rogers on CNBC 09-09-11.
If you look at the chart below, Silver has by no means changed its trend. It has maintain the uptrend support line and held the 50% Retracement level. This market has been extremely volatile, so it would only make sense that it would have dramatic sell-offs as well as rallies. Call our office 312-264-4331 and we can give you additional information regarding the metals that is of urgent importance.
Silver ~ Monthly
CURRENT TRADES
Upon Request – afranklin@pricegroup.com
Questions? Ask Anne Franklin today at 312-264-4364
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