Timing & trends

Bob Hoye: Current Risk Analysis - Perspective

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Posted by Bob Hoye - Institutional Advisors

on Thursday, 30 August 2012 00:27


Only a few weeks ago, stock market sentiment figures were at very bearish readings. This was prompted by the prospect of Spain's insolvency, Euroland splitting up and the worst drought in the US in fifty years.

Not all could be enduring.  Crops will soon be harvested and the drought will no longer be in the headlines.  Grains will turn down.

In the meantime, often seasonal optimism could run into early September.  Spanish yields have declined and industrial commodities (base metals and crude) have rallied as well.

Even most classes of bonds have rallied this week. This could be anticipating a pause in the stock market advance.  Investment-grade corps, treasuries and emerging market debt are doing well, but the sub-prime seems to be topping (chart follows).

On money market stuff, the Ted-spread has narrowed significantly since the concerns of late last year. However, in the past two weeks it has had some unusual swings.  Perhaps some volatility prior to a change.

An overall blessing has been the decline in the gold/silver ratio.  From 59.4 in June it has declined to 54.5.   Much of this has been accomplished in a rush since last week. Enough of a rush to drive the daily RSI down to 27. This has been the RSI level that has ended most of the declines over the past decade.

In looking at the ratio from the other direction, Ross's Silver/Gold Chart is updated and attached. By this measure, the rally in precious metals is close to ending.

Usually our Pivots are sent out earlier on each Thursday, but things looked fascinating yesterday and much of today was spent trading. In order to get this one out a simpler form is being used.

Also noteworthy is that December corn has completed a "Sequential Sell"  pattern that suggests an important top is at hand. The rollover would likely take down other hot agricultural commodities (GKX).

Momentum on the GKX reached 82 a couple of weeks ago and that has ended important rallies over the past decade. One of which was with the cyclical high in 2008. That high was 513 on the index, the next important high was 570 in March last year. So far, this year's high was 533 a couple of weeks ago – with the momentum high. Today's close was 513.

Crude oil has accomplished an outstanding swing from very oversold to rather overbought. Also yesterday's ChartWorks noted that a "Sequential 9" had been accomplished.  Also the Dollar Index is approaching support at the 81 level.  Last week we noted that the Canadian was approaching resistance at 102 on good momentum. It reached 101.6 and it has declined to 100.5.  Technically, a test is needed to reverse the trend, but weakness in the fall has been likely.

While we have been hoping the sunshine for orthodox investment would run into early September,  the actual seasonals for the stock market suggest caution. Over the past thirty years the S&P has set its August high early in the last week of the month.  Remember the rules for after Labor Day – Don't be overweight equities and don't wear white shoes.

With the initial discovery of financial troubles the flight to the liquidity of gold could help the price in dollars, but the "flight" could also be to the unique liquidity of US treasury bills, which would firm up the dollar.


  • The advice through the summer has been to sell into the rallies for most investment sectors. The hit to US bond markets has been a big heads up and the rebound could run for a week or so.
  • It seems that another liquidity problem will not be avoided. The process of discovery could begin in the next few weeks.
  • In which case, which sector could provide the "safe haven"?
  • In the disaster that began in March 2000 banks became the defensive equity group. The long bond rallied from 91.8 in March 2000 to 110 as the crash completed in late 2002.
  • In the 2008 Crash, long bonds also enjoyed the "flight to quality" in a bull move from 105 in mid-2007 to 143 at the end of 2008. There was no significant defensive equity sector.
  • This time around, there may be no large equity sector that could be defensive. Moreover, the European bond revulsion could worsen and spread to the US bond markets. In which case, the long bond will not become the focus of the next flight to quality. A sound understanding of term risk could prevail.

Representative Sub-Prime Mortgage Bond

Picture 2

The RSI of the Silver/Gold ratio suggests that it is time to start scaling back positions in miners.  Optimum gold targets are $1692 & $1720.

Picture 3


"Federal Reserve Chairman Bernanke calls it his 'nightmare scenario'.  Republicans are considering including a plank in their party platform calling for a full audit of the central bank."

– Bloomberg, August 8

Why not?

Health agencies have been calling for full clinical testing of "alternative health remedies" such as homeopathic medicine. The latter could be germane as it prescribes small amounts of some compounds that are toxic. Now we all know that large expansions of credit are ultimately toxic. But in the early days of tax-payer seduction, central bankers touted that they knew just how much to issue to "manage" the economy. They would never be reckless in providing stability. Then every country had to have a central bank and a "national economy" resulting in the longest run of high volatility in history.  Sort of a relentlessly forced instability.

Now the Fed is overloaded with "toxic waste".

Hey, but not to worry! A year after the 2008 Crash, the Financial Stability Board was formed and based in Basel. It is made up of finance ministers and central bankers – all specialists in the arts of homeopathic finance.

Somehow this reminds of the BIS. The website of the Bank for International Settlements states its mission is "to promote international stability".  It was formed in 1930 – a year after the 1929 Crash – and is located in Basel.

"Foreign direct investment in China fell to the lowest level in two years in July."

– Bloomberg, August 16

"China Mobile Ltd.,  the world's biggest phone company by subscribers, fell the most  [-5%] in more than year as profit growth cooled to the slowest annual pace in 13 years."



E-MAIL  bhoye.institutionaladvisors@telus.net

WEBSITE:   www.institutionaladvisors.com


Timing & trends

Updated - Gold & Silver: "The Beginning of a Big Move"

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Posted by David Morgan via Michael Campbell

on Wednesday, 29 August 2012 13:24

 David talks more about the following companies:  ENDEAVOUR SILVER CORP. - FIRST MAJESTIC SILVER CORP. - FRANCO-NEVADA CORP. - GOLD STANDARD VENTURES CORP. - SILVER WHEATON CORP. - SILVERCREST MINES INC. (Article begins at this headline below: Will Expert David Morgan Call the Bottom on the Metals Market Again? )

David Morgan, the author of the Morgan Report, told Michael Campbell he thinks that this recent move up in precious metals highlights that the consolidation is over, a significant bottom has been hit and we are at the beginning of a big move up.

Its been roughly 16 months now since Silver ran pretty much straight up from $26:00 to it's intra day peak of $49.52 April 29th 2011. "When you get a run like that it takes usually a year or two to consolidate". Given silver can pull back harshly after those kinds of moves "we became very cautious, warning that if you have to buy silver, buy some of it but not all of it" . 

It looks like the consolidation is over "We have based for so long"  and David thinks this is the real thing:

"There is no significant resistance to silver until we hit about the $32 level. Gold has also broken through some resistance. I really do think we are going to see some back and fills but we going to be higher by the end of the year. I'm looking for 35-40 silver by year end and Gold at the $1,800 level or perhaps higher". 
While on Money Talks in February 2012, David was then looking for a very weak period coming through into this August 2012 period, Now that  the precious metals have bottomed here it gives him the assurance that the models he is using are performing well. One thing he looks at that "no-one pays attention to at all" is the bottom that occurred in the precious metal equities in May when the sentiment was so poor. "There wasn't anyone anywhere in the sector that wanted to hear anything about a Gold or Silver stock. Or any resource stock for that matter. They were very very undervalued, in fact the equities relative to Gold Bullion were at the most undervalued they'd been in over 30 years". 
David also saw a significant amount of volume but the prices weren't moving "and that's almost always short covering by the professionals". The people that were shorting these stocks and making money all the way down decided enough is enough and took profits. The short covering by the professionals clue, plus with the sentiment being so bad, David concluded that this was probably the bottom for the precious metal equities. "That set up the bottom in bullion as the equities usually bottom 2-3 months before the bullion". David put out to his subscribers his estimate of a bottom in the precious metal equities. and that a bottom in Bullion would be occurring in August, "a period of time that is seasonally favorable for precious metals anyway". 

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Using Kitco's numbers Gold is up 7% and Silver is up 11% for the week, both on good volume. "We are on our way. We will see some resistance on the way back up but with all this going on in the EuroZone and all of these unresolved problems, more and more people are waking up to the precious metals story". 
Picture 2

Short Term

September is a big month as everyone goes on vacation in Europe, we have the Dutch elections in September, the decision whether to give more money to Greece as well as the German constitutional ruling. So there is going to be no shortage of things that the market is going to be focused on. "On the German constitutional situation, basically Germany is the only country holding the EuroZone together, and if their judicial committee decides that they really can't loan any more money to the EuroZone that will definitely cause all kinds of financial problems obviously"

"So there are a lot of things coming up including the US Election. You normally don't see the Stock Market going down significantly during a Presidential Election year, the metals are usually held in check and a lot of that could not just happen this year. The markets are actually much more powerful than the plunge protection team overall. That doesn't mean they don't come in an manipulate the markets, we all know that they do. What I am saying is if you've got a runaway to the downside in the general Equity Market, which is possible, that after just a few days of a scare like that might cause a shifting in the markets through a QE3, or an action by the Chinese Central Bank. Normally markets actually predict the future, so the big move in Gold and Silver of the past week is probably anticipating a QE3 or some problems ahead. 

The big hint has been dropped. In Bernanke's last meeting it was announced that every Fed Governor, with the exception of one,  was saying that we should loosen monetary policy further. "What gets to me is that QE1 didn't work, QE2  especially didn't work so let's do QE3? In other words lets do what never works, add more debt to a debt based system that is drowning in debt. Basically under the Obama administration, the debt has doubled for every US citizen from roughly $60,000 to $135,000 per person in 4 years .Arthur Laffer had an interesting study of Government spending showing the tight correlation between lower growth and increased Government spending".

Bullion or Equities

Bullion has outperformed the stocks. "There is nothing more generally negatively correlated to the stock market than Gold Bullion. However as I said earlier the precious metal equities were undervalued by the largest margin in the last 30 years. So if you are new or you already have your Bullion position I highly suggest you consider going into the precious metal equities.
David thinks that if you really want to catch up to the people that were buying Gold under $500  or Silver under $10, the equities are the way to do it.  I" want to underscore what I have always taught and will continue to do so that to hold precious metals you have to hold the actual metal first. Once that is established, if you really want to catch up to the people that were in earlier than you it is the equities you should focus on. We have beaten our brains out searching for value and found three equities on the speculative side and one mid-tier in 2012 and all of them are up as of this month. The last one that my staff discovered by going onto the property.is actually a silver company that pays a dividend in precious metals. With these smaller companies getting on the ground and seeing what is really going on is something that really pays off.
One thing David wants to emphasize is that he likes value. Given value is very hard to find in the Junior sector, they accentuate the mid - top tier company sectors. "We put serious money into serious companies, but we all like to speculate and you don't just make a large bet on one single speculative stock but a small bet on several you can come out quite well. We have had several huge winners and we've had some dogs like everyone else, but  I can't emphasize enough that if you are really serious about this sector now is the time. You buy when its low, you buy when no-one wants it, you buy when the market is quiet". 

Especially important David thinks the older you are and the more money you have the more you should emphasize quality. Further a lot of these top-tiers that David's company recommends and holds himself have options available so "when these things get overdone, you can write options or "rent" your stock for 3-9 months and take in a big chunk of change because there are high premiums on Gold Stock options". David likes to take that option premium money and recycle it into the Junior Sector. "I feel better somehow if I pull out $10,000 writing options on my high quality stocks, and instead of taking a vacation with it recycle it into 3 or 4 Juniors my staff has researched and found." 
When asked to recommend a Stock David's reply was: "Look, the biggest money is usually made in the Junior Sector, there is really no ifs, ands, or buts about it. But it is very difficult to pick a single stock, so here is my stock. Sprott Resource Lending Corp.,  SILU  on the NYSE. It is basically a mutual fund that holds speculative situations and they hold a lot of warrants so it has a ton of upside. It basically mitigates the risk because its just not a single stock it is a basket of stocks and Sprott knows what they are doing, believe me".

In Summary

David Morgan's Central Thesis is that on a longer term basis how can't hard assets return to the forefront given that the relentless manufacturing of money devalues the purchasing power of that money. That hard assets will go up as it will continually take more devalued money to buy a hard asset. He points out that there has never been in history a time when you've had a non-backed currency, a pure fiat system, where it hasn't been inflated away. That you've got that track record to rely on that this is the underlying fundamental driving force in the markets today. 
The deflationists argue that there is so much debt out there that as the debt collapse happens, as money is withdrawn out of the system, that paper money will actually usurp Gold and become more powerful. David "quite honestly I have never ruled out the deflationary argument entirely". All I am saying is that I let history do a lot as far as telling me where the future is going to go and  there has never been a time in history where the Central Banks have had an opportunity to print money into oblivion and they haven't done it. To think that they'll not do it again this time is not a very high percentage bet".
The most important factor David thinks that everyone is aware of is counter party risk. "You had the MF Global blow up and where do they put their people? They put almost all their people into PFG and what happens to PFG ? It blows up. It is a question of confidence and trust, and there is so much counter party risk out there the whole system is based on false confidence. To think they can print their way out of this thing is ridiculous, it has never happened and it never will".  
David concludes thats why people are gravitating towards the precious metals. That people are going to find out, as they are currently finding out in Europe, that putting their faith in politicians is going to prove to be as absolutely disastrous as it has been for Greece, for Portugal, and is probably going to become in Spain and Italy. The list is a long one.
 To read about or subscribe to any of David's services just go to the Money Talks Store and scroll down to the Newsletter section.  

Will Expert David Morgan Call the Bottom on the Metals Market Again?

by the Gold Report

David Morgan, editor of The Morgan Report, expects gold to top $1,800/oz and silver to top $40/oz by the end of the year and both to take off from there. In this exclusive interview with The Gold Report, Morgan shares the logic behind his predictions and identifies several companies set to benefit from the end of the precious metal doldrums.



The Gold Report: What's your current outlook on metals, the economy and the general market indexes?

David Morgan: My outlook is bullish on the metals both short and long term. I think that the bottom is in for the mining equities as well as for the metals themselves. More and more people will realize that there's really no way out of this debt-based monetary system, whether it is about the U.S. reserve currency, the Eurozone or anywhere else on the planet that uses a fiat currency. There's a problem here and it can't be resolved. We're going to see more pressures to the commodity sector in general, particularly the precious metals.

TGR: In mid-May you called the bottom in the mining shares and the bullion. What leads you to make such bold calls and maintain a high degree of accuracy?

DM: I use my own indicators that come from a lot of experience. A couple of other things also keyed me. One was that the sentiment was so bad that it was screaming we are "at the bottom." Another was that there were a few days where the volume was very, very high and there was no real buying pressure. It was short covering. Short covering at a bottom is a good indicator that the smart money or the professional money is moving out of the market. In other words, they shorted for a very long time. They made their money, they're getting out and are covering their positions.

All these factors led me to decide to stick my neck out, which is part of the job I do, and say that this looked like a bottom to me. My experience of over 30 years in this business tells me that it usually takes about three months to confirm a bottom. I'm pretty convinced that I did get the bottom; now it's just wait and see another month or so if I'm correct on the metals themselves.

TGR: What prices are you predicting for silver and gold?

DM: I'm looking for silver to be above $35/oz and perhaps as high as $40/oz by the end of the year. I think we could see gold at about $1,800/oz by the end of the year. We still have four months ahead of us this year and with the fix that the global economy is in, a lot of people are going to come back into what they call the fear trade, and that will lift the metals. Once gold reaches a couple of upward resistance lines, you'll see a lot of momentum players come to the market as well for a quick trade.

TGR: Last year you were predicting $75/oz silver. What's changed since then?

DM: What's changed is the deflationary scare that I also talked about. It just happened to go a lot longer. I changed my mind partway through. That's one reason why you would subscribe to something like The Morgan Report, especially if you really want the most up-to-date thinking. Basically, we saw a big push from Quantitative Easing 2, where silver went from $26/oz to $48/oz. A lot of people thought it would keep going. I called that top at that time and thought that after it ebbed and flowed we might be able to build a base quicker than we have.

Once I was able to determine that the base building would take a lot longer than I originally thought, I changed my view and said we're going to look at probably $35–40/oz by the end of the year, not $60–75/oz. Will we ever see $75/oz silver? Absolutely. I've always predicted that we would see $100/oz silver as a minimum. I still think that's low but we haven't been there yet. So, you have to first get to $60/oz and $75/oz silver before you get to $100/oz. I'm still looking for the top to be out probably three to four years from now.

TGR: What do you see going forward into the new year? Any particular price targets for silver, gold and the white metals?

DM: I'll be a little more conservative than I was at the beginning of this year. I think in 2013, we'll see silver above the nominal high of $48/oz. As for gold, for 2013 I believe we'll take out the $1,900+/oz level that gold has already achieved. I'm looking for new nominal highs in both metals in 2013. I think we'll get far beyond that but I don't want to put a number on it at this time. I've wiped enough egg off of my face this year.

TGR: Taking a macro view, what do you see in the general/physical economy from a monetary point of view?

DM: The physical economies are not doing that well in much of the world. A lot of misallocation of capital has taken place. China is a good example; it has tons of real estate that can't be rented. The prices are too high.

Food stocks, generally speaking, are in some cases lower than they've been for quite some time. Energy, food and water are crucial globally and there hasn't been enough capital movement into those essential elements. A lot of nation states are looking at what they have in the ground or are growing on the ground and are coveting their own natural resources. In the book "Resource Wars," Michael Klare outlines the scenario of nation states going to war to either take resources that they need or defend resources that they already have. I'm not predicting war but we already see increased competition for resources.

On the financial side, the political class in every country is doing everything that they can to make this a fuzzy, mysterious problem that they'll blame on anybody but themselves. And, of course, they're the main culprits because they have so much control over the money supply.

So, I see the physical economy dwindling, resource wars in our future and the political class pretending as if nothing's really wrong. Everything is going to be happy tomorrow but tomorrow never gets here.

TGR: On to the mining side. Given the upheaval we've seen in Argentina, Peru and most recently in Guatemala, what do you consider the most mining friendly countries?

DM: Currently, I would say Canada. We just did a piece by David Smith in The Morgan Report about the overlooked silver mining ability of Canada and mines in general. The United States still is a good place, especially if you're a foreign investor. We have a lot of recommendations in Mexico, but I never want to have too much in any one geopolitical area. Some of the Scandinavian countries would be fine. In Africa, you have to pick and choose based on what part of Africa it is. There are resources in Africa but they're being developed as brand new. We really don't know how well they'll work out because there's not much empirical evidence yet. South Africa is a mess and getting worse. I've stayed away from South Africa during this bull market even though I was very heavily invested there during the first bull market in the 1970s to early 1980s. There are some exceptions, but the risk is very great.

There is a report put out by the Fraser Institute that gives its take on the most politically stable countries for mining. I don't agree with it completely, but it's a good start. This is an art form and not something that is scientifically derived. Investors want to be careful about the geopolitical jurisdiction because no one can call them all perfectly. Investors should not put all their eggs in one basket when you're in the resource sector. Either have some top-tier companies, such as Silver Wheaton Corp. (SLW:TSX; SLW:NYSE) or Pan American Silver Corp. (PAA:TSX; PAAS:NASDAQ), that have assets all around the world or, if for investors picking their own stocks, use a service like ours to make sure that the investments are spread out geopolitically.

TGR: SilverCrest Mines Inc. (SVL:TSX.V; SVLC:NYSE MKT) has pretty much said it is going ahead with the aggressive expansion program over the next year and a half or so and double its metals production. What are your thoughts on this?

DM: I've always liked SilverCrest. This is one that we've had on the list for a long time. The market usually does what it's supposed to but not always in the timeframe one would like. SilverCrest is undervalued. I believe that it is going to be a good winner for anyone who is in the stock. Doubling a mine's production, even though it's a small one, is quite a difficult thing to do. I've met with the management in Vancouver several times over the last few years. We've also had site visits. I like what SilverCrest is doing. I like the management; they're very serious and know what the margins are. They know where to narrow the costs so the margins will increase.

TGR: Are there any more companies you like either in Mexico or in one of the other jurisdictions?

DM: There are two companies that I would like to mention and almost have to mention them together because both have been good to me investment-wise. First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE) is great. CEO Keith Neumeyer has done a heck of a job with the company. Its stock suffered—to our benefit—because he kept giving production targets that he missed. I suggested to him, and I don't know if he listened to me, that he underestimate production and when the company exceeds it, the market will pay attention. The market finally caught fire and it's been a good stock.

I'd also say Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE) has a great team. Some consider the company to be fairly promotional, but you've got to promote your product and your company. Endeavour has basically done everything it has said it would.

Both of these companies are in high growth states and I like that. So, even though they've moved considerably from when they first were on the list at The Morgan Report, if you're a conservative investor and the stocks are undervalued now, which I believe both are, you can still buy these stocks.

TGR: For the more conservative investor, are there any larger-cap companies you like?

DM: There are two that I want to talk about. Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) is pretty conservative. It has compounded about 20% a year. It's run by some of the smartest people in the business and the company has a ton of cash. Franco-Nevada knows how to inject cash into certain projects so it gets a royalty stream and upside on top of the royalty stream. It's now listed on the New York Stock Exchange.

The other one that's been in the doldrums fairly recently and is coming out of them is Silver Wheaton. This company really knows what it is doing. It is buying streams of silver from companies all over the world. The contracts are fair to both sides in most cases. It's really hard to be a company that knows ahead of time what the costs are for the silver going in, what Silver Wheaton pays and what the cash flow is coming out, based on the current silver price. So, you can actually do your own modeling. Investors are buying silver in the ground pretty cheap with Silver Wheaton. I like that model a great deal. I think it has a lot of merit to the upside.

TGR: Any companies in the U.S. that you would like to mention?

DM: Gold Standard Ventures Corp. (GSV:TSX.V; GDVXF:OTCQX) is one; it's in the Carlin Trend. The people who run it are very, very knowledgeable. It's a speculative situation—a high-risk/high-reward situation.

TGR: Any catalysts that you see coming up?

DM: Well, Gold Standard just put out some news and the market misunderstood it and the stock actually got punished for it. But on large projects, which this one has the potential to be, people don't really understand drill results. When you have a disseminated project or an open-pit situation, it's a far different model than a high-grade, hard-rock, narrow-vein mining situation. Grade is king. I almost always prefer hard-rock mining. But, some of these bigger projects are so robust, and with the mining techniques that we have now, they can make a lot of money. So, it's right next to one of Newmont Mining Corp. (NEM:NYSE) mines. It could be a buyout. If you want a North American speculative play—everything else I've talked about is fairly conservative—you could throw Gold Standard Ventures out there.

The management is very savvy; CEO Jonathan Awde is young but he's smart and he knows whom to hire. His geologist is one old codger and he knows what he's doing. He's been in that area practically his whole life. One of the richest guys in Canada has got a big bet on this company. So, there are a lot of things going for it that I like. I'm going to put a bet on this company, but, again, it is speculative, so I'm not going to risk a lot.

TGR: What is the best investing advice you have ever received?

DM: It sounds trite because it's said and people don't do it, but cut your losses and let your winners run.

TGR: It's hard to do.

DM: But that's one of the best because if you're able to sell, you are doing the opposite of what most people do—most people sell their winners and hold their losers. No, investors should cut their losers and let their winners run because if investors have one stock that's going to make 100 new highs over a 10-year timeframe, that's the one you want to keep all the way up.

TGR: I think that's great advice. Thank you for taking the time to talk to us.

David Morgan (www.Silver-Investor.com) is a widely recognized analyst in the precious metals industry; he consults for hedge funds, high net-worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, the author of "Get the Skinny on Silver Investing" and a featured speaker at investment conferences in North America, Europe and Asia.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

1) Chris Marchese of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: Silver Wheaton Corp., SilverCrest Mines Inc. and First Majestic Silver Corp.
2) The following companies mentioned in the interview are sponsors of The Gold Report: SilverCrest Mines Inc., Franco-Nevada Corp. and Gold Standard Ventures Corp. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) David Morgan: I personally and/or my family own shares of all of the companies mentioned in this interview. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.

More About David Morgan and The Morgan Report

Seduced by silver at the tender age of 11, David Morgan started investing in the stock market while still a teenager. A precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems ahead and reasons for investing in precious metals. 

David considers himself a big-picture macroeconomist whose main job as education—educating people about honest money and the benefits of a sound financial system—and his second job as teaching people to be patient and have conviction in their investment holdings. A dynamic, much-in-demand speaker all over the globe, David’s educational mission also makes him a prolific author having penned "Get the Skinny on Silver Investing" available as an e-book or through Amazon.com. As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. 

Additionally, he provides the public a tremendous amount of information by radio and writes often in the public domain. You are encouraged to sign up for his free publication which starts you off with the Ten Rules of Silver Investing where he was published almost a decade ago after being recognized as one of the top authorities in the arena of Silver Investing.






Timing & trends

Mark Leibovit: Bulletin

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Posted by Mark Leibovit - VRTrade Platinum Newsletter Clip

on Wednesday, 29 August 2012 11:52

The markets are trading sideways to lower, awaiting Fed Chairman Bernanke's Jackson Hole speech on Friday. Asian stocks today closed mostly lower: Japan +0.40%, Hong Kong -0.12%, China -1.05%, Taiwan +0.40%, Australia -0.07%, Singapore +0.05%, South Korea +0.65%, India -0.80%, Turkey +0.14%.


Bearish factors for stock market include high expectations from Bernanke and Draghi, Japan's downgrade of its economy and the sharp 5.3 point drop to 60.6 in the Aug U.S. consumer confidence index from the Conference Board, which was much weaker than market expectations for a 0.1 point increase to 66.0. Slightly on the flip side the 8 point rise in the Richmond Fed index was roughly in line with market expectations and the June Case-Shiller Composite-20 home price index rose +0.9%, which was stronger than market expectations of +0.5%.

I wrote this morning:

"September is normally a bad month for the market, but selling does not have to begin September 1. It could begin now or September 15. Why tempt fate? Are you counting on a Bernanke bailout of the stock market? Are you considering Israel has pushed against the wall by a less than friendly Barack Hussein Obama? Are you ignoring that Spain, Italy, Portugal, Ireland and possibly France may be the next dominoes to fall in an imploding European financial system? Are you considering the fact that volume has dried up on in the U.S. markets and most of trading is by professionals and not the public with the public looking elsewhere away from the banksters, thieves and vermin that control Wall Street who in turn have the regulators under their thumb?"

(Ed Note: To find out how Mark is trading this scenario Mark offers a VRTrader Trial Offer  HERE. Mark also offers  his Annual Forecast Model @ for a 50% discount to those who call 928-282-1275 or email HERE. For the VRGoldLetter there is also a Trial Period HERE


Less than a week after Bank of Canada governor Mark Carney lambasted corporate Canada for sitting idly on its cash, data have emerged that suggest Canadian companies experienced one of their worst quarters for profit - the financial engine that allows businesses to generate a financial war chest - since the recession.

Corporate earnings fell 4.9% in the second quarter to $71.9-billion, according to data released Tuesday by Statistics Canada, a signal that many firms may have had at least some justification for wanting to behave in a miserly fashion.

Canadian companies have been posting record profits since the recession wore off in 2009 and a good portion of that haul has been cautiously diverted to cash reserves as managers look to add a layer of cushioning against a shaky global economy.

But last week, Mr. Carney lashed out at the penny pinching, saying companies need to deploy their hoarded capital to help the domestic economy - or give it to shareholders to do that for them.

Tuesday's data show that a hoarding mentality may be justified, said Leslie Preston, economist with Toronto-Dominion Bank.

"Canadian corporations have seen their profit growth slow over the past year and in that kind of environment, without it being clear when things are going to get better, it's perfectly understandable for corporations to be building up cash reserves as a cushion," she said.

TORONTO - A new Labour Day survey suggests Canadians are more optimistic this year about their job security as well as hiring and growth prospects at their companies - and many expect a raise.

The Bank of Montreal poll finds nearly two-thirds, or 64%, of respondents are comfortable with their job security.

The survey suggests 41% believe their company is growing and will be hiring.

Both measures are up 13 percentage points from the number of employees who expressed confidence last Labour Day.

And 39% expect a promotion or raise this year, up 11 percentage points from last year.

The results come despite lingering economic uncertainty, a still high unemployment rate and a disappointing report showing the economy shed jobs in July.

The Canadian economy shed a surprisingly steep 30,400 jobs last month, which pushed the unemployment rate up a tenth of a point to 7.3%. It was the first major hit in nearly a year for what had been a mostly positive employment record.

And the economy has been growing at a rate below 2% since last fall.

But Canadian workers are relatively well-off compared to their American and European counterparts, as the Canadian unemployment rate is one percentage point lower than in the U.S. and four percentage points lower than in the eurozone, said BMO senior economist Sal Guatieri.

"Canadian job security is fairly good, with our 7.3% unemployment rate below historic norms," he said.

"Canadians should expect wages to rise modestly faster than inflation, supporting household purchasing power, with the strongest gains in Alberta and Saskatchewan," added Guatieri.

Meanwhile, 22% of respondents to the BMO survey said they expect their company will be downsizing and laying off employees, while 24% expressed concern about their job security.

Another one-in-five said they felt they were working in a "dead-end" job, indicating that their company would not be in a position to dole out promotions, raises or bonuses.

By region, respondents in Alberta were most optimistic, with 60% feeling their employer will hire this year.

Atlantic Canadians were most likely to believe their company would lay off employees, with 28% expressing that sentiment.

The survey was completed online from July 31 to Aug. 3 by Pollara Strategic Insights, with a sample of 1,000 Canadians. A probability sample of the same size would yield a margin of error of plus or minus 3.1% 19 times out of 20.

Earlier this week, a survey report by global business consultancy Mercer suggested non-union workers across Canada can expect wage increases of 3.2% on average next year.

The projected wage increases would match actual increases in base pay reported for 2012. They would also be up slightly from the average of 3% in 2011 and 2.9% in 2010.

Earlier this week, Finance Minister Jim Flaherty became the latest official to call on Canadian businesses to invest some $525 billion of dead cash back into the economy.

Last week, Bank of Canada governor Mark Carney told Canadian companies that are holding on to piles of cash because of global economic instability to give it back to their shareholders.

The bank governor was responding to a question about a previously released Canadian Labour Congress study that suggests Canadian businesses are sitting on some $500 billion in cash assets.

And Prime Minister Stephen Harper has said, on a global scale, there is "money sitting on the sidelines" that can revive the world economy.


Timing & trends

Why the Markets Are Headed for a Surprising Fall

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Posted by Larry Edelson - Uncommon Wisdom

on Monday, 27 August 2012 07:28

If it turns out I’m wrong about the coming moves in the markets, so be it. I’ll make tons of money anyway, and so will those following my forecasts.

Reason: I’m not a perennial bear, like a stopped clock that’s right twice a day. I’m actually very bullish long term on everything from precious metals to stocks — the only exceptions being U.S. Treasury bonds and the dollar.

So when the real bull emerges for gold, silver, oil, and other commodities and stocks, I’ll be riding it — planning to make more money in the next two to three years than most people make in a lifetime.

And those gains I plan to make will be amplified by what’s about to happen in the short term, where giant traps are about to slam shut on many investors and traders who are getting caught up in the recent, premature rallies.

Let me review the major markets for you, and why I believe they are headed for a surprising fall.

First, I’ll start with the fundamental backdrop to all the markets. Europe’s nightmare is not over.

Yes, the European Central Bank seems to be moving closer and closer to a full-scale assault on the euro-zone’s crisis by printing money.

But the deal’s still not done, and yet nearly all markets are acting like it is.

Germany stands in the way. This past week, its Bundesbank apparently made some remarks that if the ECB is to print more money, the Bundesbank wants to be in control of it AND the ECB.

So ECB money-printing is not a done deal. But here’s the catch: Even if the ECB starts printing endless amounts of euros, what’s that going to do to the euro?

It’s going to slam it to the mat, and send the U.S. dollar soaring.

A soaring dollar will, in turn, add to the disinflationary forces already impacting the U.S. economy. That will send stock markets lower, gold lower, silver into a tailspin, copper down the tubes, and more.

A plunge in the euro and rally in the dollar won’t help Europe’s economy, either.

Most of Europe is now not in a recession, but rather, a depression. And as the euro plunges, capital flight out of the healthier European economies such as France and Germany will escalate, hollowing out the rest of the euro zone.

Meanwhile, while the U.S. economy is indeed in better shape than Europe’s, our self-centered leaders in Washington are doing nothing about the deficit … nothing about the interest on the debt … and nothing about the upcoming fiscal cliff.

All they care about is the elections. Yes, they will solve the fiscal-cliff dilemma of spending cuts and tax hikes — reaching some sort of compromise. But it won’t happen until the 11th hour, in late December.

Meanwhile, the uncertainty and the growing recognition that our leaders are full of you-know-what is soon going to destroy confidence in the markets, and this won’t be bullish. It will be bearish, leading to nervous selling and liquidation.

At the same time, China is showing additional signs of slowing.

Let me be perfectly clear: China and Asia in general remain in very good shape, and in long-term bull markets.

But short term, there’s no question that neither Europe nor the U.S. can rely on China stoking up the global economy.

(That’s ironic isn’t it? It used to be that the world looked toward the U.S. to support the global economy. Now the world looks to China!)


Additionally, I see no technical evidence that the recent rallies in metals and stocks are anything but a giant trap.

Consider gold, for instance: As this weekly gold chart clearly shows, gold’s recent rally is weak, at best, and nothing but a corrective relief rally.

First, notice the downtrend line from the 2011 record high. It’s still very much intact and is now providing major overhead resistance at the $1,650 to $1,670 level.

Second, notice the downward-sloped red line higher up, labeled as a cyclical trendline. This is the TRUE breakout point for gold.

Gold needs to close above that line, more specifically above my system buy signal at $1,727.70, to confirm a breakout and a new bull leg higher.

Given all the resistance before that comes into play, I doubt very much that gold can pull off a breakout now, especially since the short-term cycles will soon be pointing down, into September.

Also notice the rounded formation of gold’s recent sideways-to-higher trading action. That’s corrective trading action, meaning this is the kind of trading action that is indicative of a correction to a bear market, and not the start of a new bull leg higher.

What about the fundamentals for gold? Yes, the long-term fundamentals are bullish. Europe and the United States are facing a monetary and sovereign-debt crisis. One that will eventually send gold to well over $5,000 an ounce.

Which is precisely why I recommend that long-term investors hold their gold. But in the short term, Europe’s crisis — which is not over — is bearish for gold.

In addition, gold demand in India and China is actually falling.

Now let’s look at …

The U.S. Dollar: I’m the original bear on the U.S. dollar, and I pegged its bear market starting way back in the year 2000.

The dollar remains in a long-term bear market. But short term, it’s about to turn much higher.


Fundamentally, as Europe begins to print more money (and it will eventually), the euro will fall and the dollar will rally, by default.

System-wise, the Dollar Index also remains short- and intermediate-term bullish. Only a Friday close below 80.65 on the index would negate that.

Meanwhile, a move above the 84.60 level will point to a massive rally in the Dollar Index up to near the 92.00 level.

The chart of the Dollar Index is also bullish. Support is scaled in at the current level of 81.80-81.90, followed by 80.65 and 79.00.

Silver: If you think silver is now headed back to $50 and higher, think again. Just look at this weekly chart of silver.


All silver has done is try to rally to test overhead resistance, which remains formidable at the $30-$31 level.

Silver should soon turn back down, and quite violently, with a break of the $26 level still in the cards, and a slide to the low $20 level highly likely.

Fundamentally silver is an industrial metal, not a monetary metal, and should move lower as Europe’s economy continues to contract.

Also consider crude oil: About the only thing holding oil up right now is fear of an Israeli attack on Iran’s nuclear facilities.


That attack will happen. But I doubt it’s going to take place as soon as most are expecting, in the next few weeks to couple of months, and I doubt it will do much for the price of oil.

Oil is already pressing extreme resistance levels.

It may yet test the $100 mark, but overall, oil’s chart action is bearish and my systems remain bearish on an intermediate-term basis.

As you can see from the chart, oil is now pressing into a major resistance level. I expect it to soon turn back down. And quite sharply.


Now, the Dow Industrials: Long term, the Dow and the S&P 500 stocks are headed MUCH higher.


And the recent strength in the broad U.S. stock markets is showing you its potential.

The simple fact of the matter is that our stock markets — and many of our great companies — are the beneficiaries of capital flight from Europe.

As that crisis worsens, and Washington gets hit with its own sovereign debt crisis, both European and American capital will be attracted to the stock market. Money will flow out of U.S. bonds and into stocks. Regardless of the economy.

Few people understand this, but the U.S. stock markets can become a safe haven for capital. Just like bonds have been, or gold. When that happens, and it will happen, U.S. stock markets will soar.

But we’re not yet fully into that phase. Right now, it’s mostly European-flight capital that’s holding up our markets.

That will continue, but in the short term, there are also forces weighing on U.S. stocks — namely the uncertainty of the looming U.S. fiscal cliff of spending cuts and tax hikes.

That’s partly why I believe the Dow Industrials — and the S&P 500 Index — are now forming a massive double-top, as you can see on that chart.

Odds still favor a move back to the downside, one that could be very sudden and very sharp.

Additional evidence comes from my system models, which show a move lower heading into September, a move that could find the Dow sliding back to at least the 12,500 level and possibly lower.

Also important: Something very few are talking about. The Dow Transportation Index is not confirming the move higher in the Dow Industrials.


You can see it on this chart, which shows the Dow Transports on the bottom half. While the Dow has moved very close to a double-top. The Dow Transports remain well-below their highs of earlier this summer.

That’s called a Dow Theory non-confirmation, and it is largely bearish.

Reason: If the transportation sector is not confirming the action in the Dow, it’s telling you something, and in this case, it’s likely telling you that the real economy, so to speak, is not supportive of the current Dow Industrials pricing.

My bottom line: Don’t get caught up in the recent rallies. They’re hazardous to your financial health!

Instead, stay the course. I suggest you keep the bulk of your money safe and secure in U.S. Treasury bills or related money-market funds.

Consider keeping your gold holdings hedged. I also recommend you don’t buy more gold yet. Don’t buy silver yet. And if you’re a speculator, speculate on the short side of these markets (except for the dollar).

Until next time …

Best wishes,


Larry Edelson has over 34 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Power Portfolio provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

For more information on Real Wealth Report, click here.
For more information on Power Portfolio, click here.




Timing & trends

Too Much of a Good Thing

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Posted by Bill Bonner - The Daily Reckoning

on Saturday, 25 August 2012 08:07

In the years 2007-2012, Nobel Prize winning economists Paul Krugman and Joseph Stiglitz — along with celebrity economist Jeffrey Sachs and practically all their colleagues — failed to notice the most-important thing to happen in their field. But not noticing things came naturally, easily to them. In fact, you might say they had built their careers on not noticing things, especially the most-important thing in economics.

It was part of their professional training. It was what allowed them to be economists and to win coveted prizes and key posts in a very competitive occupation. Had they been more reflective…and more observant…they would probably be teaching at community colleges.

But that is just a part of our story. By the late 20th century, economists — especially leading economists — had ceased being useful. They had become a nuisance. They closed their eyes to what an economy actually is…and to how it works…and focused on their own world — a make-believe world of numbers and theories, with little connection to the world that most people lived in. And now in the 21st century, they are up to mischief. And part of the mischief involves not noticing things that are right in front of their noses.

The most-important single feature of modern economies is growth. Without it, neither businesses, households nor governments can pay their bills. Without it, pension funds…private and public…go broke. Without it, the stock market is doomed….and bonds get crushed when debtors can’t pay.

In fact, without growth, every government in the economically developed world faces catastrophe. Its revenues stagnate while its costs — largely driven by open-ended health and pension obligations to aging populations — continue to expand.

By the year 2012, in fact, every major government in the developed world is already in trouble. Some more than others, depending on their ability to borrow money… or to print it. The US, Japan and Britain are still technically “solvent” because they control the currency in which their debts are calibrated. They can always print money to pay their debts; creditors do not have to worry about a simple default. Greece, Italy, Spain, Ireland, Illinois and California, on the other hand, are already keeping lenders up at night worrying that they will not and cannot pay their bills.

Even on these terms, Japan and Britain stand out, each with total debt of more than 500% of GDP. But even this Everest of debt was overlooked by most economists. Rather than look out the window, they hunched over their computers and studied their formulas and their numbers, apparently unaware of the avalanche that was headed their way.

Ultimately, an economy must pay its bills. And it can do so only by drawing on its own savings and output. Debt is money that has already been spent. It is like sin; it may be fun when you are doing it, but there’s always a price to be paid later on. Debt repayment is a painful part of the cycle. And sometimes it is so painful…so enormous…that the bill can never be settled.

Britain and Japan had had their spending sprees. They had their carefree days. How will they now pay their debts? You can forget paying them “off”; no one even imagines that such a thing is possible. But they must be serviced. A lender must get something for his trouble, even if it is a pittance.

Typically, lenders demand a pound of flesh for every 20 or so pounds they lend. The present period is unusual in that regard. Growth rates are so slow, savings rates so high and lenders so fearful, that they no longer require much in the way of yield. They are happy to take no real flesh at all. The U.K. 10-year bond yielded all of 1.68% in mid-August 2012, well below the rate of consumer price increases. As for the Japanese equivalent, investors were content with 0.8%. If there were any consumer price inflation at all, investors would lose money.

Inflation rates have been going down for more than 30 years. Ever since the CPI hit a high of 11% in 1980. Investors must think they will continue going down forever. If that is so, nations such as Japan and Britain will continue to carry their debt at vanishingly low interest cost. But it would be a strange world in which markets went only in one direction. And it will be an even stranger world in which foolish investors fail to get what’s coming to them.

The word normal is in the language for a reason. It was coined to describe what usually happens after something very extraordinary has happened. It is rare for lenders to lend below the rate of consumer price inflation. In effect, they are consenting, at the get-go, to a loss. What normally happens after investors do such a thing is that they do lose money — far more than they expected. Interest rates normally give lenders a 2-4% real return on their money. So if inflation rates were to hit the mark central bankers have set for them — about 2% — and if lenders were to want the interest payments that they normally expect, Japan and Britain would have to devote about a quarter of their entire annual output just to service debt. That’s another way of saying that one out of every four dollars of GDP must be used to pay for things that were consumed…used up…and probably already amortized…years ago.

There’s another word, in English, that describes the likelihood of that happening — zilch.

But deeper than the numbers or the words themselves or the particularities of the situation circa 2012 was a whole theory of government…a “social contract” now in jeopardy. The modern social welfare state was invented by Otto von Bismarck in the mid-19th century. The idea was simple. Governments required the consent and support of the masses. That was the lesson that Republican France had taught the world and that Bismarck had learned. You could get a lot more out of “citizens” than you could out of “subjects.” The subjects of Frederick the Great might reluctantly pay their taxes…and might join his armies. But they would always keep a distance — emotional and physical — between themselves and their masters. War and government were Frederick’s business, not theirs. Monarchs might retain the loyalty of their subjects. They could claim some of their money, too. But even the Sun King, Louis XIV, the man for whom the term “absolute monarch” was coined, was lucky if he collected 10% of the kingdom’s GDP in taxes. As for his soldiers, every one of them wanted payment. In real money.

In the course of the 19th century, monarchy was gradually replaced by some form of representative democracy or republicanism. Not that democracies were necessarily better in any moral or practical way. They did not necessarily improve the lot of the people who lived in them, neither materially nor judicially. Why were they such a hit? It may have been that defensive weapons — repeating rifles — had become cheap and effective. It was much more expensive to keep an armed, subject population in line. Or it may have been a result of the spread of ideas via cheap newspapers and books. Or it may have been merely that because of the Industrial Revolution, people were getting richer and could afford more government.

Readers will find more on the role of government, its growth and efficiency, later. For now, let’s just note that parliamentary, participatory democracy became fashionable in the 19th century. The main reason was probably because it is easier to squeeze and bamboozle a citizen than it is a subject. The real genius of modern democracy is that it makes the citizen feel that the government and its workings are somehow the product of his own aspirations. If he wants more money for his retirement, he presumes he can get is — provided only that enough fellow citizens share his desire. If he wants to go to war, that too is up to him and his fellow voters. If he wants to spend more money on space exploration or ban people from saying prayers in bars, the majority — of which he feels he should be part — can do that too.

There is hardly anything he and his fellow lumpenvoters cannot do — just so long as they are of one mind on the subject. That is why you so often hear people say, ‘If we could only get together on this…” They believe solidarity is the key to success. Whatever the majority wants, it gets.

Even kings had bits in their mouths and a hand on the reins. According to the “divine right of kings” doctrine, a king was a servant of God. A king was subject as well as monarch. God himself had given them the post; they could not refuse it. Nor could they refuse to carry out the job on the terms that they believed God had prescribed. God could pull on the reins whenever He wanted.

Often, monarchs were ridden by those who claimed to represent God. In the famous example from the 11th century, Pope Gregory VII got into a dispute with Henry IV, the Holy Roman Emperor. Henry was excommunicated. How much harm Gregory’s excommunication would do him, Henry might not have known. But he didn’t want to find out. He dressed as a penitent and waited three days outside the Pope’s refuge at Canossa. Then he was admitted and forgiven.

The democratic majority, on the other hand, recognizes no authority — temporal, constitutional nor religious — that can stand in its way. And thus it deludes itself to thinking that it is the master of itself, its own government and its own fate.

“The government is all of us,” said Hillary Clinton.

More to come…


Bill Bonner
for The Daily Reckoning


Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010. 

Do this before gas hits $8 a gallon... If you could turn soaring gas prices into personal income, would you? We've learned how you could use this "payback" approach to fund your retirement. All indirectly at the expense of "Big Oil."Learn How

Read more: Too Much of a Good Thing http://dailyreckoning.com/too-much-of-a-good-thing/#ixzz24ZQoBoif


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