Friday, March 21, 2008

March 21.08 Commentary

Greetings from Hong Kong.

Gold closed down a record 59.00 dollars to 943.80 and silver hit 18.80.
The xau contract fell a huge 14.8 points to 178.10 and thus the gold divided by xau ratio just ht an all time high of 5.3

I have been following this index for years and it generally trades around 4.5-4.9. It seems gold shares are cheap compared to gold itself.

I guess you all heard about the big bailout of Bear Stearns on Monday. The 2 dollar price tag was a number picked out of the air. When the Fed saw Bear Stearns numbers, they knew the company was hopeless. One dollar just didn’t sound right. A zero price would cause a panic as the counterparties would go they decided on a price of 2 dollars.

Strangely Bear’s stock rebounded on Tuesday as investors thought that they could get a higher price. The stock market rose over 300 points on Lehman and Goldman earnings. On closer examination all of Lehman’s earnings came from a 1 time accounting quirk which allows them to lower their perceived credit derivatives. The accounting move provided 600 million to the good and this allowed these guys to report a loss instead of a huge loss which the market would not have liked.

Today, we heard 3 disturbing details on the banks and near banks:

1. Merrill Lynch is suing its insurer of 3 billion dollars. The move was done to delay mark to mark accounting losses at Merrill.

2. And 3. We heard that both Morgan Stanley and Goldman sachs borrowed from the Fed window.
Even though both showed profits they are burning underneath.

In simple English, we have an insolvency problem and not a liquidity problem. Or stated another way:

We have a systemic margin call on the banks by the banks as they desperately try and shore up reserves. The world is reporting to you the above balance sheet stuff. It fails to tell you the off balance sheet garbage has blown up!! It is truly amazing that Goldman et al go to the Fed window and receive massive bailouts and they use this money to bomb gold.

I want to emphasize a few points so you would not get discouraged. This is option expiry week for the gold shares and for the past 3 years, gold is always bombed on the Wed before expiry. My son Lenny picked up a big increase in the premiums on Monday which meant a raid was imminent. However with the bank failure of Bear Stearns I decided to buy gold and silver anyway. Gold always reverses after option expiry.

The excuses the boob tube gave was totally ridiculous. They said gold traders expected a bigger rate cut. They also stated that hedge funds are selling their gold to pay their losses. Hedge funds that play gold and silver are only interested in that commodity. They do not go long gold and long stock market as a hedge.

Now the fed is in a pickle :

The 3 month interest rate is trading around .6%, and with the Dow tanking 300 points today, do not be surprised to see another rate cut next week.
The Fed is injecting massive amounts of dollars into the system. The banking sector is melting down.

I will try and reach you tomorrow


Wednesday, March 19, 2008

March 19.08 Commentary

Hello All,

Well what a day. This is what I think is going on.

1. Tommorrow is options expiry and a gold raid always ALWAYS preceeds this day. Anticipate a follow through tommorrow
2. This is a gold delivery month. The cartel loves to raid gold on a delivery month.

So a question arises, "How is the cartel able to bomb gold so badly today, but not in the last 3 months.

The answer: On Sunday the fed annouced they will accept mortgage back securites as collateral from THE CARTEL. The cartel are massively underwater on their gold positions, and mortgage bonds. They were running out of capital to bomb gold. This is why gold ran up from 650 to 1030 so quickly. However the fed gave them a fresh supply of cash to the tune of 200 billion. They immediately went to work and bombed the s*** out of gold, Mon Tue and Wed and it looks like Thursday.

Why not to worry:

1. The cartel will cover really soon, maybe as early as Easter Monday
2. There is a consequence for the fed buying junk toxic waste bonds in exchange for treasuries. It is hyper-inflationary. In no time at all a) India will be purchasing this cheap $920 gold and b) inflation will rear its ugly head.

Hopefully this explains what happened today and you will all not lose an ounce of sleep.

In 2006 Gold fell from 725 to 565 in one month after the US govt ordered the price lower. Geoge W met with Paulson, Bernanke and SEC on Sunday and likely gave the same order. Therefore, assuming a similar situation gold could retrace though unlikely in this environment to the 860s by April 18th, the options expiry for April. After that smooth sailing ahead.

My dad doesnt know I am writing this but I am sure he will approve.

Have a good night


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