Tuesday, May 3, 2011

Silver Shield: Banksters Covered 26 Million Silver Oz Short Position

By Silver Shield
May 2nd, 2011

The CFTC released it’s commitment of traders report for the last Monday’s Silver Smack Down. And it shows the big guys used the raid to cover -5,209 short contracts (each contract is 5,000 oz. of silver) which is a little more than 26 million ounces of short silver. I wonder how much they covered with a much larger raid last night?

This is a huge development. As soon as these guys either cover their shorts or they fail to deliver the physical metal it will be game over. (Remember we have less than 38 million ounces in the registered inventory of the CRIMEX.

World wide silver production is 735 million ounces and the banks are still short 258 million ounces or 51,644 contracts. They have a long way to go.)

The big question is, if we are in a blow off, parabolic, unsustainable top, why are the banksters covering their shorts?

Got Physical Silver?

Macy's a Strong Pick on Improving Sales: M

If there's one retailer out there worthy enough to shrug off the winter weather's effects on retail sales as well as sluggish economic recovery in general, it's Macy's.

Total revenue in 2010 was up 6 percent on year at $25 billion, while profits more than doubled to $847 million. Sales have been climbing in 2011 as well.

Total sales hit $2.207 billion for the five weeks ended April 2, 2011, an increase of 1.6 percent compared with total sales of $2.172 billion in the five weeks ended April 3, 2010.

On a same-store basis, sales were up 0.9 percent in March.

Online sales (Macys.com and Bloomingdales.com combined) were up 34.8 percent in March and 33 percent year-to-date, the company reports.

The company credits its sales increases to good old common sense: picking products consumers want and selling them at the right price.

"March sales exceeded our expectations and demonstrated that our spring fashion assortments are hitting the mark with customers. We generated same-store sales increases at both Macy's and Bloomingdale's, despite a calendar shift in which the pre-Easter period and a planned cosmetics promotion at Macy's fall into April this year versus March last year," Terry J. Lundgren, chairman, president and chief executive officer, says in a company statement.

The company has raised its forecast. Same-store sales in April are expected to be up between 8 percent and 9 percent, the company says, mainly due to expected strong demand for Easter-season promotions.

That figure would translate to an increase of 4 percent to 4.5 percent for the combined March-April period. Previously, the company said it expected combined March-April sales to be up by approximately 3 percent.

Analysts see Macy's (M) stock as a buy, as the company is performing well against its peers and valuation models indicate stock prices can rise. Credit Suisse, for instance, has the stock at outperform and calls it a top pick.

Of 14 brokers tracking the stock, the mean target price is $30.75, according to Thompson/First Call, which would be a better than 27 percent gain from recent prices.

Energy guru Schork: Get ready for all-time high gas prices, oil pegged to the dollar...

Stephen Schork, president of the Schork Group, explains why he believes oil and gas prices should continue to surge higher. He explains that he is bearish from a fundamental perspective, but that the dollar could continue to decline as the US government remains very accommodative. He says it will ultimately be “as bad or worse” than 2008.

Three Market Valuation Indicators Continue to Signal Caution

Here is an combined perspective on three market valuation indicators I routinely follow:

  • The relationship of the S&P Composite to a regression trendline (more)
  • The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)
  • The Q Ratio — the total price of the market divided by its replacement cost (more)
This post is essentially an overview and summary by way of chart overlays of the three. To facilitate comparisons, I've adjusted the Q Ratio and P/E10 to their arithmetic mean, which I represent as zero. Thus the percentages on the vertical axis show the over/undervaluation as a percent above mean value, which I'm using as a surrogate for fair value. Based on the latest S&P 500 monthly data, the index is overvalued by 41%, 46% or 67% depending on which of the three metrics you choose.

I've plotted the S&P regression data as an area chart type rather than a line to make the comparisons a bit easier to read. It also reinforces the difference between the two line charts — both being simple ratios — and the regression series, which measures the distance from an exponential regression on a log chart.

The chart below differs from the one above in that the two valuation ratios (P/E and Q) are adjusted to their geometric mean rather than their arithmetic mean (which is what most people think of as the "average"). The geometric mean weights the central tendency of a series of numbers, thus calling attention to outliers. In my view, the first chart does a satisfactory job of illustrating these three approaches to market valuation, but I've included the geometric variant as an interesting alternative view for P/E and Q.

As I've frequently pointed out, these indicators aren't useful as short-term signals of market direction. Periods of over- and under-valuation can last for years. But they can play a role in framing longer-term expectations of investment returns. At present they suggest a cautious long-term outlook and guarded expections.

Stocks end lower despite bin Laden death, earnings

The Bin Laden rally lasted all of three hours.

Stocks began climbing Monday morning after news of the death of the world's most wanted terrorist overnight. Strong earnings reports from Humana Inc. and other companies also pushed them higher.

But by lunchtime, the gains were gone. The major indexes wavered throughout the remainder of the day and closed slightly lower.

"As great as the news is, it doesn't have much to do with earnings or the economy," said Jack Ablin, chief investment officer at Harris Private Bank.

The Dow Jones industrial average fell 3.18 points to close at 12,807.36. The average of 30 stocks had been up as many as 65 points in morning trading.

President Barack Obama said late Sunday that bin Laden, the al-Qaida chief who masterminded the Sept. 11, 2001 attacks, had been killed by U.S. forces in Pakistan. The news lifted investors' mood when the market opened.

"It's a feel-good item," said Howard Silverblatt, senior index analyst at Standard & Poor's. "It gives closure to a lot people."

But Silverblatt expected the impact on markets to be temporary once traders shifted their focus to corporate profits and economic news.

Strong earnings over the last two weeks helped the Standard & Poor's 500 index reach its highest levels since the financial crisis on Friday, when it closed at 1363.61.

The S&P 500 index fell 2.39 points, or 0.2 percent, to 1,361.22. It had been up 7 points Monday morning. The Nasdaq composite fell 9.46 points, or 0.3 percent, to 2,864.08.

The dollar dropped against a basket of six major currencies -- the euro, Japanese yen, British pound, Canadian dollar, Swiss franc and Swedish krona -- for the eighth day straight. The dollar index sank to 72.72, its lowest point since July 2008.

Whole Foods Market Inc. fell 5 percent, making it the worst-performing stock in the S&P 500. A Jefferies analyst downgraded the company and said sales could stagnate as shoppers feel the pinch of higher gas prices.

Dish Network Corp., Chrysler Group LLC and Humana Inc. all reported strong earnings. Dish Network's first-quarter net income more than doubled, in part, because of a patent settlement with TiVo Inc. Its stock rose 16 percent.

Humana's profit rose 22 percent. The company benefited from more people enrolling in its Medicare plans. Its stock gained 0.5 percent.

The privately-held Chrysler reported its first profit since leaving bankruptcy two years ago thanks to higher sales.

Israeli drug maker Teva Pharmaceutical Industries Ltd. said it would buy Cephalon Inc. for $81.50 per share, or $6.8 billion. Cephalon's key drugs include the sleep disorder treatment Provigil and the cancer drug Treanda. Cephalon's shares rose 4 percent.

The Institute of Supply Management reported that manufacturing activity increased for the 21st month in April, though at a slightly slower pace than the month before. This was expected by economists. The Commerce Department also reported that builders started work on more projects in March after three straight monthly declines in construction spending.

Roughly three shares fell for every two that rose on the New York Stock Exchange. Trading volume was 4 billion shares.

Technically Precious With Merv

For week ending 29 April 2011

Gold and silver keep pushing into new high ground, why are the stocks not following? Too often the activity of the gold stocks is a leading indicator as to what the metal might be doing so one should be very cautious about jumping into the commodities at this time. This is not a certainty but the stock performances just may be warning of a metal collapse ahead.



The June gold contract hit $1569.80 on Friday, very close to my long time projection of $1575 ($1600 for simplicity). The next major stopping point on its way to the stratosphere will be the $2300 level. In the mean time things will not go directly there but in all likelihood there will be ups and downs along the way. In fact, a downer is getting closer and closer but even if it should come it is not expected to be a major long term bear but possibly an intermediate term one.

Despite the cautionary tale above, a very encouraging sign that there is significant strength behind this latest move is the fact that the long term momentum indicator has now exceeded its peak from last October. This confirms the strength of the recent price move. Everything, price, volume and momentum are now in new bull market highs, if not all time highs. Technicians are always very happy in situations such as this but I always caution that new bear markets are usually generated from all time market tops. Be that as it may all long term indicators remain positive and above their respective moving average or trigger lines. The long term rating remains BULLISH at this time.


Although the intermediate term is my favorite time period for speculation (and in gold it is not investing) usually it gets the short shift in my analysis between the long term and the short term. Here, things are also bubbling. About the only difference in the charts and indicators versus the long term is that the intermediate term momentum indicator has not quite matched its peak from last October, but this is a minor point as it is climbing rapidly and is in very strong territory. Here too, all the indicators are in positive territory and above their respective moving average or trigger lines, which themselves are in positive slopes. The intermediate term rating continues to be BULLISH.


Everything on the short term chart suggests a strong bull move but also is suggesting that the latest move may be a “blow-off” move. We have one of my expanding bearish FAN trend lines in force. These tend to be broken on the down side. As readers may remember, the breaking of that third FAN trend line is the end of the bull trend with a move expected to at least the first trend line. This break will come long before even my short term indicators go bearish but that is the power of the Expanding FAN trend lines and the “blow-off” stage.

Although the breaking of that third FAN trend line will most likely take place before the short term indicators collapse nothing is certain so let’s just look at what these short term indicators are telling us at this time. First, the gold price remains well above its positive sloping moving average line. The momentum indicator is very high up in its positive zone, in fact it is in its overbought zone from where reversals had occurred in the past. It is also above its positive sloping trigger line. As for the daily volume action, that is still relatively low. This has continually been one of the cautionary indicators that although the price action is very positive there seems to be a lack of speculative interest in jumping in on the up side of this trend. Still, putting these indicators together we still have a BULLISH rating for the short term. This is further confirmed by the very short term moving average line remaining above the short term line.

As for the immediate direction of least resistance, global events seem to dominate and in volatile situations such as that it is dangerous to try and guess what to expect from day to day. However, I would venture a guess that we are getting closer and closer to some sort of a reaction. It may start tomorrow or may not start for another week; global events will most likely dictate the timing.


Having just recovered from my power, phone and cable being ripped out of my house by a broken tree I am sort of behind time in this commentary so silver will get the short shift. However, a quick comment for now. Although with a better weekly performance than gold (see Table below), silver failed to make new highs on Thursday or Friday, unlike gold. It seems that silver is giving us an earlier warning of a possible reaction ahead. We will just have to wait and see.


For some time now I have been cautioning about a possible reversal in the gold and silver stocks. I had been waiting for the Penny Arcade Index to give me that advance warning as the gambling stocks (the pennies) are usually the first to collapse. Well, here we have it. The intermediate term turned negative back in early March and now we have the Index breaking below its long term moving average line for the first time since its bull move started back in late 2008. The long term moving average line has not yet turned downward but that may be only a week or so away. Another sign of a penny collapse is the intermediate term momentum indicator. It has now moved into its negative territory also for the first time since the start of the bull move. This is not the time to be holding the penny stocks and may be an advance warning that holding the speculative and investment quality stocks is also very hazardous.

There WILL come a time to be jumping into the pennies. This Index should give us that notification with plenty of time to profit thereafter. For now, holding the pennies may be disastrous for your portfolio. Of course, this assessment may end up being wrong but if so one can always get back in with their capital, albeit at a slightly higher price. The option is to hold and pray. If wrong you will not have any capital left to get back in when the turn comes again.

Well, that’s it for this week. Comments are always welcome and should be addressed tomervburak@gmail.com.

Merv Burak, CMT

Baker Hughes Rides the Crude Oil Wave: BHI

Oil prices continue to surge higher, with the June contract on the New York Mercantile Exchange hitting a 31-month high near $113 a barrel. That’s just the ticket for Baker Hughes, the world’s third-largest oil services provider.

The company provides a full array of services to all kinds of exploration and production companies in more than 90 countries, including:

• Drilling, evaluation, and fluids.

• Completions, production, and chemicals.

• Pressure pumping.

• Reservoir development services.

The pressure pumping services come courtesy of Baker Hughes’ $5.5 billion acquisition of BJ Services last year. The move turned Baker Hughes (BHI) into a one-stop shop for oil services. That particularly helps the company overseas, where many oil companies want all their services in a single package.

Given Baker Hughes’ prominent position in a growing market, you may want to take a look at its stock.

The company’s profit almost tripled to $381 million in the first quarter from $129 million a year earlier, easily beating analysts’ estimates. Revenue soared 78 percent to $4.53 billion, also topping analysts’ forecasts.

The BJ Services purchase, an improvement in profit margins overseas and a surge of oil and gas drilling in the U.S. fueled the gains. The company said its pressure-pumping services are sold out in North America.

As for foreign profit margins, they rose to 12.2 percent in the first quarter from 9.1 percent a year earlier. The company expects continued improvement, with the margin possibly reaching the mid-teens next year.

“High oil prices have spurred both international oil companies and national oil companies to accelerate their spending plans,” Baker Hughes CEO Chad Deaton said in a statement.

“Assuming oil prices do not increase to levels high enough to destroy demand, we expect oil-driven spending growth to be sustained for multiple years.”

Standard & Poor’s analyst Stewart Glickman has a four-star buy rating on Baker Hughes. “We think BHI's post-BJ Services merger cost-cutting efforts continued to bear fruit,” he writes. “We also see prospects for activity and pricing gains in 2011 and 2012.”

Is The SLV Wired To Blow?

’m not real big on suspense, so I’ll tell you upfront, I think so. Once again, we may be about to find out what happens when regulators are asleep at the switch.

As of this writing there are 364 million shares of SLV outstanding. In the past five trading days (April 25 – 29) more than 755 million shares have been traded, and get this, more than 10 million ounces of silver were taken from the trust between the 26th and the 28th, taking available shares with them. From Stockhouse.com :

Note: Stockhouse.com is the only free website that I know of that accurately tracks the number of ETF shares outstanding and changes (wish I could say the same of my broker). Enter the ETF ticker with the suffix “.SO”

At what point does trading volume relative to existing shares become unbelievable?

Information on institutional holdings of ETF shares is also hard to find. but according to nasdaq.com, 86 million shares of SLV are held by institutions, but that does not include any holdings reported since April 1, 2011. And speaking of missing data, does anybody know where China Investment Corp’s 13F‘s are? The sovereign wealth giant filed its initial holdings with the SEC on February 5, 2010, but no additional data has been released. The SEC requires the form to be filed within 45 days of the quarter’s end.

The point is that the SLV has become one of the most heavily traded instruments on our exchanges and there is an all too finite number of shares. There’s at least some evidence that the SECs institutional holdings data is outdated and/or incomplete. What happens when all the shares are spoken for? If it hasn’t happened already (I suspect it has), it should soon…..

Then what?

Will the SEC suspend sales of the SLV? Will the SLV start trading at huge premiums to NAV? Will the SEC even notice?

I don’t know about you, but I’m going with “SEC will never notice,” because they have no mechanism in place to ensure “shares owned” doesn’t exceed shares outstanding (remember Mary Schapiro’s only qualification to Chair the SEC is her inability to recognize a Ponzi).

Obviously if SLV starts trading at huge premiums, it isn’t tracking the price of silver anymore. It will have a market dynamic unto itself. Suspending sales until more silver is deposited with the trust will immediately cause a run on physical silver the likes of which has never been seen before. The silver exchange on the COMEX will blow up in a matter of minutes, followed shortly thereafter by JP Morgan and the class structure of western civilization. If you don’t know how tight the silver supply is getting, take a peak at this chart from 24HOURGOLD:

Kudos to 24hourgold.com for doing a better job tracking the rapidly vanishing supply of registered silver than the COMEX!!!! (Hope it’s OK I stole a screenshot).

To make matters even worse, SLV trades options. Lots and lots and lots of options. So when the shares outstanding are all sold, there will be people with call options, who have bought the right to buy shares of SLV at a given price. Forcing cash settlement means the SLV no longer can claim to track the price of physical silver, because the purchase of silver by an authorized participant to create the shares to cover the options would have surely moved the price of the metal.

So once again America, ignoring the grim reality of the situation is the only logical course of action. The SEC knows all too well that that’s what porn sites are for. So unless somebody posts this on Pornhub……

I’m sure that Tyler Durden’s instincts will be proven correct again, when he stated thatBlackrock’s Kevin Feldman’s defense of the SLV was a red flag in and of itself. Blackrock is the sponsor of the SLV, and Kevin urged everyone to read the prospectus. That was probably not such a good idea. Be extra careful when you try to download the prospectus, I got the following warning:

Comedy ensued after using Firefox (safe mode) to view the prospectus:

“The sponsor does not exercise day-to-day oversight over the trustee or the custodian”

Which seems to conflict with Kevin’s letter:

“At BlackRock, we take the responsibility of protecting shareholder interests very seriously and spend a lot of time constructing our iShares products to help ensure they meet investor expectations.”

So in reality Blackrock takes protecting shareholders about as seriously as the US Department of Justice takes perjury. To his credit, Kevin did link to a list of bars the SLV holds in some vaults over in England. The list was prepared by JP Morgan, because if you can’t trust them regarding silver, who can you trust? Rather than spoil all the potential ways the SLV might not meet “investor expectations”, I thought it would be fun to make a contest of it (see comments).

The SLV pimps out the price action of the silver it holds to shareholders. It can terminate the trust for a long list of reasons, not the least insignificant of which is if the Authorized Participants (who actually own the silver) feel like it.

Suddenly everybody has an opinion of what the price of silver should be, but as JPM is now finding out, if you don’t have silver to sell your opinion doesn’t count.

I don’t wish any ill on SLV shareholders, but make no mistake, you don’t own silver. History has not been kind to people who made similar mistakes, and recent history should tell you no one is looking out for you.

Miscellaneous Fun Facts:

  • In February, 2007 the author contacted the SEC via email regarding Countrywide Financial CEO Angelo Mozilo’s insider trading.
  • In March 2007 the author applied for an SEC bounty regarding Angelo Mozilo’s insider trading (up to 10% of recovered amount) . Countrywide’s stock was trading at about $37 at the time. It would trade over $40 in May and implode to less than $5 by late 2007.
  • On June 4, 2009 (27 months later) the SEC charged Mozilo with insider trading and securities fraud.
  • In October 2010 Mozilo agreed to pay $67.5 million in fines to the SEC to settle the charges against him.A
  • At its peak, Countrywide had a Market Cap of more than $26B. Angelo Mozilo has an estimated net worth of $600 million.
  • The SLV currently has a Market Cap of approximately $17B.
  • The author never received a bounty from the SEC, because the Dodd-Frank “Financial Reform” legislation repealed the previous SEC bounty program. Bounties can no longer be paid based on an outsider’s analysis of publicly available information.
  • In 2010, the author applied for a job as an “abusive trading practices specialist” with the SEC. He received no reply.
  • In February 2011, the US dropped its criminal investigation against Mozilo.
  • Paybacks are a bitch.

Common sense (and a little math) tells me that the SLV is already a fraud. When that becomes obvious to all is anyone’s guess, but based on my past experience, neither the SEC nor the CFTC will recognize it until about two years after it implodes.