Silver Futures CoT 2

After rocketing 76% higher in just 5 months, silver continues to enthrall investors and speculators. In the decade I've been gaming its bull through actively trading silver stocks, I've never seen this metal so popular. As more traders discover silver and start following and trading it, I've heard a lot of questions on a recent development in the silver-futures market. Its open interest recently declined sharply.

Specializing in stock trading myself, I don't delve into the futures world very often. I haven't written about silver futures since 2005. Mostly this is because years of research, study, and trading experience have shown me that silver futures usually aren't particularly relevant to silver price action. Silver's primary driver is actually the price of gold, so if you want to trade the silver complex successfully watching gold is the key.

Not only does silver-futures action fail to help me profitably trade silver stocks, it has long been ground zero for conspiracy theorists. While not as prevalent today, back in the early 2000s some newsletter writers made a cottage industry out of promoting endless silver conspiracy theories. I witnessed countless traders get bogged down in and derailed by this contradictory and ever-changing mythology. The end result was often deep paranoia that crowded out rationality, crippling their ability to profitably trade silver.

The modus operandi of the most-prolific silver conspiracy theorists was similar. They spent endless hours analyzing and attempting to draw conclusions from an arcane government report. Since this report is so technical and difficult for laymen to understand, they acted like high priests ferreting out its secrets. Their assertions started with facts from the report, but ended with opinions. Their followers eagerly hung on every word, trying to expose the vast conspiracy that prevented them from getting rich in silver overnight. (more)

Bank Bailouts Explained

Trump: Mideast Explosion Could Destroy OPEC, Lower Oil Prices

Donald Trump is mad as hell — and he’s letting everybody know it.
In a wide-ranging exclusive interview with Newsmax.TV on Friday, the billionaire real estate mogul and reality TV star lashes out at China, OPEC, Obama’s Middle East dealings, the president’s State of the Union address and more.

Trump takes aim at America’s “horrible” trade agreements, declares that the Middle East is going to explode, warns about “catastrophic” oil prices, and charges that Obama’s Afghanistan policy is “dangerous and stupid.”
He also complains that the United States is a “laughing stock” throughout the world — and confirms that he is seriously considering running for president in 2012.

Asked directly about a possible run, Trump tells Newsmax: “I’m thinking about it. I’m looking at what’s happening with this country and frankly, it’s very sad. I see what’s happening left and right, how we’re being abused by other nations, and I don’t like it. I don’t like what’s happening with jobs. I am seriously thinking about it.” (more)

5 Reasons Ford (F) is Better Than You Think After Earnings

Ford Motor Co. (NYSE: F) shares drove off a cliff on Friday, splashing mud on the broader market on their way down as the automaker reported a 79% drop in fourth quarter profits in its latest earnings report. Ford shares closed down $2.54 (a brutal 13.5% slide) as a result. But one bad date shouldn’t sour a good long-term relationship with investors — and there’s a lot to love about Ford stock long term.

First, let’s talk about Friday’s sell-off. The company’s 2010 Q4 net income fell to $190 million (5 cents a share), down from $886 million (25 cents a share) in the same quarter of 2009. Wall Street had been head over heels for the stock, which has shot up about 60% in the past year, was expecting a racy 48 cents a share. The Ford earnings miss was ugly, and so was the decline for F stock. It was Ford’s first earnings miss in two years, but it missed by a mile. (more)

Fall of Saudi Arabia to End Dollar Reserve System?

here is a social media revolution in Saudi Arabia ... Ten million Saudis are online, 3 million belong to Facebook, and Twitter feeds are up more than 400 percent. Recently, many tweets and posts have been focused on the uprising in Tunisia. In fact, Saudi's social media activists spread videos and news updates at the peak of the street protests — and the interest has stayed high ever since. And, now, Saudi bloggers have added the unrest in Cairo to the topics receiving much attention. Will the Saudi government clamp down on this free-wheeling speech after Tunisia's social media movement helped to bring down a government? It's one of the big questions ahead for Saudi Arabia. How this authoritarian regime will live with the freedom and chaos that the Internet represents. ... The Internet poses a challenge for this conservative, mostly religious society. – National Public Radio

Dominant Social Theme: The Jasmine revolution spread unexpectedly.

Free-Market Analysis: The civil unrest in Egypt is growing fiercer. Electronic communications have been shut down throughout Egypt and massive demonstrations have been planned for today. A changing of the guard in Egypt would be a massive political shift indeed, but what if the disturbances don't stop there? What if they ultimately spread to Saudi Arabia and end up bringing down the dollar reserve system?

We suggest this possibility because we believe there are larger forces at work in the Middle East. Could it be that the power elite itself is inciting these disturbances? Is the idea, eventually, to crash the dollar and set up a global currency in its place?

The dollar reserve system is propped up by Saudi Arabia's willingness to restrict the purchase of oil to dollars, a system that has been in place since US President Richard Nixon abrogated what remained of the gold standard in 1971. But the PE is notoriously unsentimental. The Saudi elite has grown enormously wealthy from its relationship with the US and now, perhaps, for the good of a new world order, it is time for them to go. (more)

History Suggests Time Is Right to Buy Dow Stocks

Are you too late to the rally?

One of the fastest bull markets in history pushed the Dow Jones industrial average to a close near 12,000 last week, the highest point for the index of 30 blue chip stocks in two and a half years. The broader Standard and Poor's 500 index, the benchmark for most mutual funds, flirted with similar highs. An investor who bought an S&P 500 index fund at its March 2009 low has doubled his money since then, assuming dividends were reinvested.

But lost in the attention focused on Dow 12,000 is the fact that it has lagged every other U.S. market index over the past 12 months. Large companies have only recently started to take the lead. That suggests that the bull market could push ahead despite the Dow's 1.4 percent drop on Friday when concerns about political turmoil in Egypt and a couple of disappointing earnings reports gave investors reason to sell.

Markets tend to move in cycles. Riskier smaller companies often fall hardest during a recession and perform the best coming out of one. Larger companies, which often hold more of their value during downturns, tend to perform better after a recovery turns into an economic expansion. After the tech bubble popped, for instance, small companies performed better than the Dow index every year from 2003 to 2006. Dow stocks performed better from 2006 to the start of the financial crisis in 2008. (more)

Technically Precious with Merv

Riots on Thursday, gold moves lower. Riots on Friday, gold moves higher. Is there rhyme and
reason here? Thursday the students rioted. Friday the Muslim Brotherhood joined in the riots.
Yes, there was a difference. Now it’s a wait and see what the outcome will be to better guess
what next for gold.
GOLD
LONG TERM
For a very strict application of my point and figure criteria the long term P&F chart has now
broken on the down side for a bear market signal. However, we do still have a support at the
$1320 level so a move to the $1305 level would be required to break this final support.
Although the P&F criteria does give that bear signal I would be inclined to wait for the final
support break before pulling my hair out and going screaming, bear, bear. The price is close
enough so that it would only take another day or two to break the support, if it is so inclined.
We might as well wait for the break.
Going to our normal indicators we get somewhat of a similar message. Going towards the
bear but not quite there yet. Gold closed below its long term moving average line on Thursday
but bounced above the line on Friday. The moving average itself is still in an upward slope.
The long term momentum indicator remains in its positive zone but has been showing a
weakening trend for some time. It remains below its negative trigger line. The volume
indicator has been in a basic lateral path for some time now. Its trigger line has caught up with
the indicator and now the indicator is oscillating above and below the trigger line as the lateral
indicator trend continues. The trigger does remain slightly in a positive slope. With all that, the
long term rating has now started to decrease and is at a + NEUTRAL level, one step below the
bullish level.
INTERMEDIATE TERM
Well, if the long term is starting to diminish in its rating then the intermediate term should be
ahead of it. That is what we have. Gold closed below its intermediate term moving average
line and the line slope remains negative. The momentum indicator is still in its negative zone
although it has turned to the up side and is just below its neutral line. The indicator remains
below its negative sloping trigger line. As for the volume indicator, that remains just a hair
below its negative sloping trigger line. After four months of a topping process one can now say
that the topping has ended and we are in a downward trend. The intermediate term rating is
BEARISH. This is confirmed with the short term moving average line well below the
intermediate term line.
SHORT TERM
We were having a down week until Friday, when something excited gold. Now, it could be the
activities in the Middle East or it could be short covering by banks or institutions. Who Knows? (more)

Asia's Great Democratic Hope Has Lost $200 Billion In Just Three Weeks

Indian markets have been bleeding money ever since November's Diwali festivals -- ironically the time when Indian's welcome the goddess of wealth into their homes.

Markets are down $200 billion or 11 percent year-to-date and $240 billion since November 8, according to The Economic Times.

Foreign investors alone have pulled $849 million out of Indian markets so far this month.

Indian billionaire Mukesh Ambani's Reliance Industries took the biggest hit Friday, dropping 2.2%. HDFC Bank Ltd. which trades on the NYSE was the one of the few companies to stay in the green, gaining 0.30% on the Sensex.

To curb inflation the central bank announced another 0.25% rate hike on January 25, the seventh since March 2010.

Goldman Sachs' Jim O'Neill predicts the carnage will continue through the first quarter, with a slight uptick by year-end.

Multiple Indicators Point to a Correction

Friday could be one of those landmark days that mark the end of this recent rally, and it’s sad that it took the protests in Egypt to be the catalyst for a sell-off. If we follow through and all three of the major indexes fall below the middle keltner channel, it will be a major bearish sign, especially given the size of the candlestick on the daily Nasdaq chart. Unless you were quick enough to get short intraday on Friday, I think it’s prudent to wait for continued weakness to initial short positions.

If you want to go long here be very selective about your stock picking and only buy the strongest charts. A few that showed up on my scans that look the best and have been big earnings winner this week are COHR, TNAV, and HP.

Market video at the end of this post.

When you look at an extended view of the Nasdaq, Friday’s sell-off doesn’t appear to be that bad. We’re still above the 50ema and well above the 200ema, where long term investors traditionally bail. (more)

US Economic Calendar for the Week

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior	Revised From
Jan 31	8:30 AM	Personal Income	Dec	-	0.8%	0.5%	0.3%	-
Jan 31	8:30 AM	Personal Spending	Dec	-	0.7%	0.6%	0.4%	-
Jan 31	8:30 AM	PCE Prices - Core	Dec	-	0.1%	0.1%	0.1%	-
Jan 31	9:45 AM	Chicago PMI	Jan	-	65.0	65.0	66.8	68.6
Feb 1	10:00 AM	Construction Spending	Dec	-	-0.5%	-0.5%	0.4%	-
Feb 1	10:00 AM	ISM Index	Jan	-	57.5	58.2	58.5	57.0
Feb 1	3:00 PM	Auto Sales	Feb	-	NA	NA	3.90M	-
Feb 1	3:00 PM	Truck Sales	Feb	-	NA	NA	5.56M	-
Feb 2	7:00 AM	MBA Mortgage Purchase Index	01/28	-	NA	NA	-12.9%	-
Feb 2	7:30 AM	Challenger Job Cuts	Jan	-	NA	NA	-29.0%	-
Feb 2	8:15 AM	ADP Employment Change	Jan	-	150K	150K	297K	-
Feb 2	10:30 AM	Crude Inventories	01/29	-	NA	NA	4.84M	-
Feb 3	8:30 AM	Productivity-Prel	Q4	-	2.0%	2.2%	2.3%	-
Feb 3	8:30 AM	Unit Labor Costs	Q4	-	0.0%	0.0%	-0.1%	-
Feb 3	8:30 AM	Initial Claims	01/29	-	410K	425K	454K	-
Feb 3	8:30 AM	Continuing Claims	01/29	-	3900K	3925K	3991K	-
Feb 3	10:00 AM	Factory Orders	Dec	-	-0.5%	-0.7%	0.7%	-
Feb 3	10:00 AM	ISM Services	Jan	-	57.5	57.0	57.1	-
Feb 4	8:30 AM	Nonfarm Payrolls	Jan	-	125K	150K	103k	-
Feb 4	8:30 AM	Nonfarm Private Payrolls	Jan	-	140K	163K	113k	-
Feb 4	8:30 AM	Unemployment Rate	Jan	-	9.6%	9.6%	9.4%	-
Feb 4	8:30 AM	Average Workweek	Jan	-	34.3	34.3	34.3	-
Feb 4	8:30 AM	Hourly Earnings	Jan	-	0.1%	0.2%	0.1%	-

Meet The Man Behind The Liquidating Hedge Fund That Blew Up The Gold Market

Over the past several weeks there had been rumors that the reason for the precipitous drop in gold was primarily driven by a hedge fund liquidating its futures positions. This has now been confirmed: "Yeah, that was just me liquidating my spread position," Mr. Daniel Shak, [of SHK Asset Management] 51 years old, said in an interview. "I had a significant, fully margined position. The dollar amount of the gold liquidation was very small, it was just a lot of contracts." Of course in the extremely jittery gold market, the kind of persistent marginal gross selling of contracts was all that was needed to spook weak hands into a consistent dump of the precious metal, which as we pointed out was beyond overdone. Judging by this morning's jump in the PM complex, SHK's liquidation is now not only over but about to promptly reverse as daytrading momos realize they were duped by one single guy. Look for gold to resume its upward advance as investors realize that the gold dump was nothing more than an ongoing futures position liquidation.

More from the WSJ:

A huge trade by a tiny hedge fund has sent shudders through the gold market.

Thanks to the nature of futures trading, Daniel Shak's $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa's annual gold production.

But as gold prices started falling this year, the trade, which was a combination of being long and short gold contracts—bets that prices will both rise and fall—started going bad. Monday, he liquidated his position, and is returning money to clients.

As a result, the number of gold contracts on CME Group Inc.'s Comex division plunged more than 81,000, to about 500,000, the biggest single reduction ever. While his trade didn't account for all of the contracts, an average daily move is about 3,000 to 5,000 contracts.

That Mr. Shak and his firm, SHK Asset Management, could control one of the largest positions in the gold market underscores how leverage can enable investors to control huge positions in many commodity markets. (more)

Governments Toppleing, Who's Next?

Market Manipulation, Why Gold and Silver Have Declined

The Thompson Reuters CRB index weighting has not changed since 2005. However, virtually all other commodities related indexes do rebalance in early Jan of every year. For instance the $CCI consists of 17 commodity constituents – with 5.88 % of the index allotted to each commodity. It rebalances in early Jan. every year.

Silver’s RABID TEAR [out performance] last year ensured that it would be “cut back” to conform to its intended 5.88 % weight.

Other commodities indexes do the SAME THING.

Big Banks know this – they run or manage most of these index funds.

Index funds dominate the trading universe more today than at any time in our financial history.

Silver and gold are being PUNISHED – in a macro sense – in early Jan - from a commodity index re-weighting point of view – PRECISELY because they outperformed so much last year. This explains why silver is getting creamed so much more than gold – it way outperformed gold on a relative basis last year.

It’s my understanding that this rebalancing window effectively closes with the expiration of Jan. Options [Wed]. (more)

Cycles of the Standard & Poor's Composite since 1932

Chart 1

We have isolated 18 completed swing cycles and the first half of the nineteenth swing cycle on this chart. We also show our interpretation of four completed secular cycles and a fifth in progress. Each secular cycle is measured from bottom to bottom, and they vary in length from 826 weeks (15.88 years) to 904 weeks (17.38 years). The following chart and table provide more details on the various sub-cycles.

Chart 2

Some statistics on each Secular Cycle and the breakdown of each into 4 sub-cycles.

(more)

Eric Sprott - Expect $50 Silver, Gold Possibly $2,150 by Spring

With gold and silver rallying off the lows today, King World News interviewed Eric Sprott, Chairman of Sprott Asset Management which has $8 billion under management. When asked about the Sprott physical silver trust acquiring silver Eric stated, “We had to go into the market and buy about 15 million net ounces from third parties and it took us about ten weeks. It was a very, very long process and the one thing we can read out of it is obviously there weren’t 15 million ounces sitting around somewhere.”

Sprott continues:

“I haven’t had time to study where the bars came from, but I can tell you by looking at the pictures of the bars they look like they came right out of the refineries. So I suspect it’s a hand to mouth situation in silver.

I think if we went in to by twenty million ounces of silver it would take a long time. I know we had an order to buy a million ounces about five weeks ago for a different account and the delivery was going to be two months. So I think silver is as tight as a drum.

When asked about price targets for both gold and silver Eric responded, “Our best technical advisor, he thinks (gold) it’s going to $2,150, and he thinks it is going to $2,150 this spring.

I think silver is a little easier to predict because I think it’s going to change relative to gold which is a more predictable event and more timely. I’ve always thought that silver should touch $50, and I’m not going to be surprised if it touches it by the middle of this year as people realize there is an absolute shortage.”

International Forecaster: Bob Chapman - A Decade Of Progress Wiped Out By Financial Policy

The corporation is not a person, a government that spends most of what it has, DHS snoops in your safety deposit box, a decade of jobs wiped out, Fed may feel losses, inflation makes itself known again.

There is nothing dumb about the financial media. They know exactly what they are doing. All they want to do is keep their jobs and in that process they sell out themselves, their families and friends, other people and their country. They know government statistics are bogus, but they won‘t report that, because if they did they will be discharged. There are two sets of alternative figures. One shows inflation at 6.75% and the other 8%. As we have reported before the PPI reflects 13-1/2% to 14%, so how can official inflation be 1.2%? If this is truly the case how can inflation be tame with food and energy prices going through the roof?

What we are seeing are the results of QE1 and QE2 in the form of growing inflation. This is our gift from chairman Ben Bernanke. The recovery he envisions can only be translated into some kind of temporary relief, which is the product of monetary distortion, not recovery. In addition observers see higher sales, but never factor in the growth of inflation. That is why the CPI figures are distorted as much as they are officially by government. This year will be a classic inflation year with prices rising in all sectors. We see current inflation at 6-3/4% and by the end of the year that should be 14%. If you refer back to CPI -U it is 6.2%, the CPI-W 7.8% and the 1980 SGS of 8.9% you can see 14% is a very tame number. If we have to guess in December the official CPI will beat 5-1/2%. (more)

Dow Theory Update and Values

At present, we have a Dow theory non-confirmation in place that began in mid-January. According to Dow theory, we must operate under the assumption that the previously established trend is still intact until it is reversed with a move above or below the previous secondary high or low point. In this case, a downside trend reversal would require a move below the previous secondary low point. Until such time, the primary trend change that occurred in conjunction with the March 2009 low still remains intact. Now, as for non-confirmations, they serve as warnings of a possible trend change. Non-confirmations do not mean that a trend change is inevitable, because it is possible that the non-confirmation can be corrected. It is also possible that the previous secondary high or low point will not be penetrated. The current non-confirmation can be seen on the chart below. If this non-confirmation is not corrected then I know from my trend quantification work that there are statistical guides that can be used to help us gauge the meaning of this non-confirmation as well as the expected outcome. I will cover that all in the research letters and updates if it continues to develop. For now, this is a warning that must simply be watched and measured against the statistical and other implications. Don’t confuse non-confirmations to automatically be a “sell signal” because in accordance with Dow theory, that is a misconception. There is much more to the story that just a non-confirmation. Rather, it is a process in which statistical and other structural evidence must be understood, weighed and considered.

In the last post here on January 14th I talked about bull and bear market relationships. In that post I explained some of the big picture reasons that the rally out of the March 2009 low must still be viewed as a longer-term bear market rally. (more)

Economist: United States Worse Off than Greece

Infowars.com
Dr. Laurence Kotlikoff is an economics professor at Boston University. He says the Treasury and the government are fudging the national debt numbers. Kotlikoff says the United States is bankrupt and we don’t even know it.

During his SOTU address, Obama called for a freeze on discretionary spending. He called for a five-year freeze on non-mandatory domestic spending, a proposal he estimated would save $400 billion over the next decade.

He said entitlements like Medicare, Medicaid and Social Security will need to be reformed without mentioning specifics. In other words, the government is thinking about cutting these programs to the bone. Boomers will be eating dog food after their pensions are stolen and the entitlement Ponzi scheme breaks down.

On Thursday, Congressional Budget Office Director Douglas Elmendorf testified before the Senate Budget Committee. He said if the country does not balance the budget soon it will find itself in a debt-driven fiscal crisis.

Jim Grant: "The Fed Is Now In The Business Of Manipulating The Stock Market...Should Confess It Has Sinned Grievously"

Jim Grant, who will never be accused of being a fan of the Criminal Reserve, and whose views on what will happen to asset prices in a printer-happy world are gradually being validated, appeared on Bloomberg TV, telling Margaret Brennan upfront that Bernanke owes the world an apology.

Alas, after various revolutions around the world have been catalyzed by Bernanke’s policies, we have a feeling that ever more oppressed people will soon see the Printer in Chief as a patron saint of violent revolution, alas against crony regimes fully supported by the US (and hopefully the US will view it the same way when its time comes).

That aside, Grant’s criticism of the Fed should really start to grate on the Chaircreature:

"I think what would be very good for the Fed if there would be a confession, the Fed should confess that it has sinned grievously, and is in violation of every single precept of its founders and every single convention of classical central banking. Quantitative Easing is a symptom of the difficulties that the Fed has created for itself. The Fed is running a balance sheet which if it were the balance sheet attached to a bank in the private sector would probably move the FDIC to shut it down. The New York Branch of the Fed is leveraged more than 80 to 1. Meaning, that a loss of asset value of less than 1.5% would send it into receivership if it were a different kind of institution…The Fed is now in the business of manipulating the stock market."

Jim also has some very critical discussions on how the Fed never settles up on the $3.4 trillion in custodial debt on its books. As always, we can’t get enough as more and more mainstream figures turn to bashing that biggest abortion of modern capital markets.

Full interview (watch video click here)

Substantial Future Home Price Declines Predicted By Goldman Sachs And Peak Theories

For anyone following the recent collapse in mortgage applications, the recent "strength" in new and existing home sales is nothing but the latest joke to spin the n^th bounce from the bottom as the "this is it" moment which Cramer has been trying to do with disastrous results ever since the summer of 2009. Oddly, reading a recent surprisingly bearish Goldman economic outlook (or not so surprising: it lays out the framework for Goldman to start advocating MBS purchases as part of QE3) piece from Sven Jari Stehn confirms our concerns that any attempt at shining light behind the headlines exposes ever more cockroaches. In "Mortgage Applications Point to Near-Term Home Sales Weakness" Stehn highlights the same issues we have been pounding on the table for months: namely that near contemporaneous plunge in mortgage applications is far more troubling and should be given far more impact than new, pending and existing home sales in any one prior period. Goldman summarizes: "The number of mortgage applications, however, has declined sharply in recent weeks. Specifically, the volume of mortgage applications for purchase—reported in a timely fashion every week by the Mortgage Bankers Association—declined by a cumulative 14% during the last three weeks. Does the decline in mortgage applications suggest that home sales are set to decline again in coming months?" In short the answer is yes, and the full note below explains it. Additionally, we have provided some technical perspectives from Peak Theories which predict a 7% drop based on recent chart patterns. Needless to say, we believe the drop will be far greater when all is said and done, now that the Bernank has given up on attempting to keep mortgage rates low and only cares about boosting stock prices. (more)

The Weekly Peak - January 28, 2011

HES Radio: World Financial Report

The World Financial Report brings you timely information on the worlds most exciting markets like oil, precious metals, currencies, commodities and hard money markets like very rare color diamonds and collectibles. The World Financial Report makes predictions and gives investment advice and has been very successful in identifying trends in the marketplace.

click here for audio

The Economist - 29 January 2011

read more here

Why Are States and Cities Going Out of Business

States and cities are in dire financial trouble. So how did they get to this point? WSJ’s David Wessel says thanks to a spend-now-ask-questions-later approach, they only have themselves to blame.

Seeking an Interest Rate Solution: Why the US Federal Reserve should raise short term rates

When the Fed lowered the interest rates for overnight borrowing to near zero, it was said to be a measure to stimulate the seized credit markets. Low interest rates stimulate borrowing. On the demand side that is true. On the supply side, it is clearly not the case.

The financial crisis woke America up from years of binge borrowing and now the credit hangover to deal with. So while low interest rates were appealing for those who wished to refinance their existing debt, there was no interest rate low enough that would tempt them to take on new debt to finance consumption. The deleveraging process limited the chance of success of an interest rate solution.

The country had almost overnight turned from a marginal borrower to a marginal saver.

One of the things that people forget is that low interest rates, while good for the borrower is not good for the saver. (more)

Euro’s death would be ‘cataclysmic’

French President Nicolas Sarkozy vowed Thursday that he and European partners will “never turn our backs on the euro,” calling it a linchpin of peace and prosperity despite the government debt crises worrying investors and leaders worldwide.

Hours before he spoke at the World Economic Forum in Davos, the Alpine winter calm was briefly disrupted by a small explosion at a hotel – unusual for this Swiss resort, blanketed in security during the annual forum. Windows were broken but there were no injuries, Swiss police said. Forum organizers said a firework was to blame.

Mr. Sarkozy also expressed concerns about currency imbalances and rising commodity prices, priorities as he presides over the Group of 20 leading world economies this year. But his most vigorous words concerned the euro, shared by 17 countries across the European Union.

“The disappearance of the euro would be so cataclysmic that we can't even possibly entertain the idea,” he said.

He acknowledged months of worries about the euro's survival since the European Union and International Monetary Fund had to bail out debt-laden Greece and then Ireland last year.

But despite those concerns, he said, “the euro is still there.”

“Europe has had 60 years of peace and therefore we will never let the euro go or be destroyed. ... I speak as much for my German friends as I do for the French,” he said. (more)

Japan's rating cut on debt concerns

Standard & Poor's cut Japan's credit rating for the first time in almost nine years Thursday, issuing a harsh critique of the government's ability to control its ballooning debt.

The agency lowered Japan's long-term sovereign debt rating one notch to AA-, which is the fourth highest level and the same rating given to China, Saudi Arabia and Kuwait. The news sent the dollar as high as ¥83.18 from ¥82.20.

The downgrade is a stern reminder to Japan that it faces consequences for letting its debt swell to twice the size of gross domestic product. Prime Minister Naoto Kan is pushing to reform the country's tax and social security systems, but the downgrade could complicate the fiscal picture by making it more expensive to finance the country's debt. Creditors typically demand higher interest rates when credit ratings fall.

Japan's debt ratio, already among the highest in the developed world, is on track to rise more than expected and won't peak until the mid-2020s, S&P said in a statement. The country's problems, it added, are exacerbated by persistent deflation and a rapidly aging population.

Japan is the world's fastest-aging country, with its population projected to shrink from 127 million people now to 90 million by 2055 — 40 percent of whom will be over 65. (more)

Marshall Auerback: Decoding Energy Investment

The Energy Report: Shares in Pinetree Capital have had a good run in the last six months, going from about $1 per share in July 2010 to about $3.38 now. What's largely responsible for that remarkable run?

Marshall Auerback: A number of things. I think Pinetree has been an undervalued stock for a long time based on its net asset value. But we had very adverse financial conditions in 2008, particularly adverse for small-cap companies, which comprise most of our portfolio. Even though we started to see an improvement in the credit markets in 2009, they really didn't start to loosen up until last year for the smaller companies. Your risk in holding these small caps is not so much market risk as liquidity risk. A number of these companies had cash on their balance sheets but they were clearly capital-constrained because they were dependent on ongoing capital injections to develop these assets.

In 2010, the capital markets began to re-engage and that made it easier for some of these companies to access funding. In turn, they were able to develop their assets, which helped improve their share prices. But it took a while. The markets were basically trendless until about September of last year, then all of a sudden you have this big move in the commodity space. Clearly, that's Pinetree's sweet spot. (more)

Hog Prices Drop From 24-Year High on Signs Rally Was Overdone

Hog futures fell from the highest price in at least 24 years on signs that the rally was overdone.

The price has jumped 31 percent in the past year, reaching 92.125 cents a pound today, the highest for a most-active contract since at least 1986. The market became “overbought,” said Tom Cawthorne, the director of hog marketing at R.J. O’Brien & Associates in Chicago.

“We just kind of ran out of buyers,” Cawthorne said. “We’ve had such a big run-up. We’ve seen a lot of spreaders liquidating out of their positions” on April contracts and summer prices, he said.

Hog futures for April settlement fell 0.1 cent, or 0.1 percent, to settle at 90.025 cents a pound at 1 p.m. on the Chicago Mercantile Exchange. Yesterday, the commodity gained 3 cents, the most allowed by the CME.

The worst outbreak of foot-and-mouth disease in Asia for at least 50 years may get more severe as Lunar New Year holidays starting Feb. 2 spark a surge in travel, threatening to spread the virus, said Juan Lubroth, the chief veterinary officer at the United Nations’ Food and Agricultural Organization in Rome. (more)

M2 Surges By Biggest Weekly Amount Since 2008 As It Hits Fresh All Time Record

Desperation kitchen sink anyone? The M2, which up until now was merely diagonal, is about to go parabolic. In the week ending 1/17/2011, Seasonally Adjusted M2 surged by $46.6 billion, the biggest weekly increase in the broadest tracked monetary aggregate (ever since the cost-cutting associated with discontinuing the M3) since 2008. One look at the chart below indicates precisely what is fueling the endless market ramp. Furthermore, for those who realize there is a 93% correlation between M2 and gold, we would certainly recommend putting on the M2/Gold convergence trade on.

Daily Gold Chart With Commentary

Gold Ends Solidly Lower, hits 4-Month Low, on Technical Selling

Comex gold futures prices closed solidly lower, near the daily low and hit a fresh nearly four-month low Thursday. Fresh technical selling amid waning safe-haven demand pressured gold prices. Comex gold last traded down $14.80 at $1,318.20 an ounce. Spot gold last traded down $26.70 at $1,320.00.

The gold market is seeing reduced safe-haven investment demand, what with the U.S. stock indexes trading near multi-year highs, no fresh headline news regarding European Union financial problems, and no major geopolitical flare-ups occurring. Indeed, investors worldwide have gained a better appetite for taking risk, which is hampering the safe-haven gold market. However, the gold market is still just one step away from a solid price rebound or an extended rally should a significant geopolitical or financial market event suddenly and unexpectedly appear in the news headlines.

Lower crude oil futures prices Thursday, which hit a fresh seven-week low, also worked to pressure the precious metals markets. Crude oil has seen bearish near-term technicals develop that do suggest more downside price pressure in the near term, and that's also an underlying bearish factor for gold.

The U.S. dollar index traded weaker again Thursday and hit another fresh 2.5-month low. The dollar index bears have downside near-term technical momentum and if the index remains on a downward path in the near term, look for gold prices to at least see limited selling interest. Gold bulls have been disappointed recently that the yellow metal has not seen more upside support from the weaker dollar index. (more)

China Will Face Crisis Within 5 Years, 45% of Investors in Global Poll Say

Global investors are bracing for the end of China’s relentless economic growth, with 45 percent saying they expect a financial crisis there within five years.

An additional 40 percent anticipate a Chinese crisis after 2016, according to a quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 7 percent are confident China will indefinitely escape turmoil.

“There is no doubt that China is in the midst of a speculative credit-driven bubble that cannot be sustained,” says Stanislav Panis, a currency strategist at TRIM Broker in Bratislava, Slovakia, and a participant in the Bloomberg Global Poll, which was conducted Jan. 21-24. Panis likens the expected fallout to the aftermath of the U.S. subprime-mortgage meltdown.

On Jan. 20, China’s National Bureau of Statistics reported that the economy grew 10.3 percent in 2010, the fastest pace in three years and up from 9.2 percent a year earlier. Gross domestic product rose to 39.8 trillion yuan ($6 trillion). (more)

Four Reasons Why The Government Is Destroying The Dollar

The United States government has four interrelated motivations for destroying the value of the dollar:

1. Creating money out of thin air on a massive basis is all that stands between the current state of hidden depression, and overt depression with unemployment levels in excess of those seen in the US Great Depression of the 1930s.

2. It is the weapon of choice being used to wage currency war and reboot US economic growth.

3. It is the most effective way to meet not just current crushing debt levels, but to deal with the rapidly approaching massive generational crisis of paying for Boomer retirement promises.

4. Political survival and enhanced power for incumbent politicians.

In this article we will take a holistic approach to how individual short term, medium and long term pressures all come together to leave the government with effectively no choice but to create a high rate of inflation. If you have savings, if you rely on a pension, if you are a retiree or Boomer with retirement accounts - any one of these four fundamental motivations is individually a grave peril to your future standard of living. However, it is only when we put all four together and see how the motivations reinforce each other, that we can understand what the government has been and will be doing, and then begin the search for personal solutions. (more)

Why the Smart Money is Trading Dollar Bills for Hard Assets

“With each passing day,” we observed last week, “inflation seems less and less a theoretical fiction, and more and more a genuine threat… No self-respecting economist or self-aggrandizing central banker is acknowledging any inflationary risk whatsoever,” we continued. “But the indifferent data points of real-world prices testify to the contrary.”

Shortly after airing these remarks we learned that import prices soared 1.2% during the month of December alone – lifting the year-over-year surge in import prices to 4.7%. The following day we learned that producer prices jumped 3.8% year-over-year. A few days after that, the Federal Reserve Bank of Philadelphia announced that producer prices in the Philadelphia region had jumped to their highest levels since July 2008.

These data points do not prove that an inflationary threat is stirring, but they do offer compelling testimony. Meanwhile, commodity prices are providing ample corroborating evidence. During the past eight months, the Reuters/Jefferies CRB Index of commodity prices has soared 32% – far outpacing the stock market over that timeframe. The grain complex, in particular, has been on a tear, as the prices of both wheat and corn have nearly doubled since last summer

These eye-popping gains may be exceptional, but they are hardly unique. All but one of the 19 commodities in the CRB Index has advanced during the last two years. (more)

The Fed, the Fear Index, and the Dollar

Bloomberg provides some insight into the current two-day Fed meeting:

“The Fed is not ready to let up on its accelerator,” said Gramley, senior economic adviser for Potomac Research Group in Washington. “They are going to be impressed with the fact the economy has gained some momentum, but there are still strong headwinds to growth, and bank lending is quite modest.”

Policy makers will probably affirm their plan to buy Treasury securities through June to reduce long-term yields and spur lending, said Mark Gertler, a New York University professor and research co-author with Bernanke.

With the markets not having experienced a correction for some time and the Fed due to release a statement tomorrow, it is prudent to review some big picture issues. The VIX, or the “Fear Index”, falls when investors are less concerned about volatility or pullbacks. Conversely, the VIX rises when concerns about volatility and possible corrective activity begin to mount.

The chart below is a monthly chart of the VIX going back to 2002. The VIX is at a level where it could logically reverse and begin to move higher, which would most likely coincide with a pullback of some kind in risk assets. Two things we are monitoring relative to the VIX are highlighted in the chart. The parallel blue trendlines in the Relative Strength Index (RSI) have acted as both resistance (red arrows) and support (green arrows) – notice the blue line is at a point where it could provide support for the VIX. A break below the lower blue RSI trendline would open the door for another push higher in risk assets. (more)

Richard Russell: The Dollar Has Lost All Stability And Is Ready For A Crash

Legendary newsletter writer Richard Russell has been calling for the collapse of the U.S. economy for awhile.

Based on recent dollar movements he says that crash is going to come now (via King World News) First the dollar has lost all stability:

Today there's no definition for the dollar. So how do we price the dollar? At one time, the dollar was priced in terms of the time-honored standards -- gold and silver. But today we must price the dollar against other fiat currencies. "A dollar is worth so much against the yuan, or so much against the pound sterling, or against the euro and so forth"

Second the dollar is moving in a bearish pattern:

To get back to the chart, we see that the Dollar Index is now trading below its blue 50-day moving average. The 50-day, in turn, is below the red 200-day MA. Thus, the Dollar is in the classic bearish configuration as long as it trades below its 50-day MA.

Note also that the Dollar has now broken below three preceding lows, a bearish situation.

Furthermore, MACD has turned bearish, pushing the blue histograms into negative territory (bottom of the chart).

Russell compares the dollar to the foundation of a house. When it crumbles (soon) the whole thing will come crashing down. To prepare for this scenario you should get the hell out of dollars:

The Russell advice -- swap your dollars for physical gold or CEF, GLD, or SGOL. In other words, do as China and Russia and many other nation are now doing -- get out of your dollar assets.

But remember, Russell has been making these predictions for awhile.

McAlvany Weekly Commentary

An Interview With Ian McAvity

Posted on 26 January 2011.

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Gold Holdings in ETPs Plunge Amid Signs of Recovery

Gold held through exchange-traded products, or ETPs, tumbled by the most in more than two years amid speculation that improving prospects for the global economic recovery are undermining demand and hurting prices.

Assets in gold-backed ETPs fell 31 metric tons yesterday to 2,043.09 tons, the lowest level since Aug. 10, according to data compiled by Bloomberg from 10 providers. That’s the biggest drop in percentage terms since October 2008, the data show. Holdings have shrunk 3.4 percent from the record 2,114.6 tons on Dec. 20.

Global economic growth may be 4.4 percent this year, the International Monetary Fund said yesterday, boosting its outlook from 4.2 percent. More than half the respondents in a quarterly poll of 1,000 Bloomberg subscribers said that the gold market is a bubble, according to the survey taken Jan. 20-24. Spot gold has lost 6.5 percent since setting a record last month.

“Strong economic data has improved confidence about the global outlook and reduced the need to hold gold and silver as a safe haven against credit risk, event risk and currency weakness,” Standard Chartered Plc said in a weekly report dated Jan. 25. “We expect further weakness in both markets.” (more)

Chart of the Day: The REAL Unemployment Rate Is 22%

Bank of England chief Mervyn King: standard of living to plunge at fastest rate since 1920s

Households face the most dramatic squeeze in living standards since the 1920s, the Governor of the Bank of England warned, as he reacted to the shock disclosure that the economy was shrinking again.

Families will see their disposable income eaten up as they “pay the inevitable price” for the financial crisis, Mervyn King warned.

With wages failing to keep pace with rising inflation, workers’ take- home pay will end the year worth the same as in 2005 — the most prolonged fall in living standards for more than 80 years, he claimed.

Mr King issued the warning in a speech in Newcastle upon Tyne after official figures showed that gross domestic product fell by 0.5 per cent during the final three months last year. The Government blamed the unexpected reduction — the first since the third quarter of 2009 — on the freezing weather that paralysed much of the country last month.

But there were fears that the country was poised to slip back into recession, defined as two successive quarters of negative growth. Economists said the situation was “an absolute disaster”.

The economic gloom deepened this morning as figures showed that mortgage lending by the major banks dived to an 11-and-a-half-year low during December. (more)

BNN: Top Picks

Norman Levine, Managing Director, Portfolio Management Corp shares his top picks.

click here for video

US Warns of Quickly Rising Food Prices in 2011 Read more: US Warns of Quickly Rising Food Prices in 2011

Food inflation, already destabilizing emerging giants in Asia, is coming soon to the United States. The government expects rising commodity prices and energy demand for ethanol to push up food prices by between 2 percent and 3 percent in 2011, according to the U.S. Department of Agriculture's Economic Research Service.

Such a rise would be a return to normal food-price increases, according to the government.

Also, overall inflation may stay “officially” low, however, since the government regularly removes food and energy costs from its calculations.

“Although food-price inflation was relatively weak for most of 2009 and 2010, higher food-commodity and energy prices have recently exerted pressure on wholesale and retail food prices,” the USDA said in a release. (more)

“Hence, higher prices are projected to push inflation toward the historical average inflation rate of 2 to 3 percent in 2011.”

Read more: US Warns of Quickly Rising Food Prices in 2011

The Wall Street Financial Crisis: A Mistake or a Crime?

All over Europe and in much of the rest of the world, a new fictional hero has engaged the fascination of millions of readers. His name is Mikael Blomkvist, and he’s the protagonist of the late Stieg Larsson’s Millennium trilogy. These thrillers, set against the background of high financial crimes and misdemeanors, have become global best-sellers, doubtless in part owing to their gripping plots, elaborate mysteries and engaging characters. But their success is also indisputably a by-product of the macroeconomic chicaneries of our era and the human catastrophes they have wrought.

Larsson understood that financial crimes are far from victimless. They have upended millions of people’s lives, even if most of the victims don’t understand how they’ve been shortchanged and who is responsible.

Although the financial crisis that swept the world may have started on Wall Street, it has brought down governments and shredded economic security worldwide, resulting in the loss of millions of jobs and homes as businesses collapse, foreclosures grow, credit tightens and communities are devastated. One estimate of the damage: $197 trillion.

The Pew Economic Policy Group reports the average U.S. household lost $66,000 in stock holdings and $30,000 in real estate values from June 2008 through March 2009 due to the upheaval in world markets. This brings us close to $100,000 per family. Against that backdrop, it’s not hard to see the appeal of Larsson’s hero Blomkvist, whose “contempt for his fellow financial journalists” the author encapsulates with stinging clarity: “A bank director who blows millions on foolhardy speculations should not keep his job. A managing director who plays shell company games should do time…. The job of the financial journalist was to examine the sharks who created interest crises and speculated away the savings of small investors, to scrutinize company boards with the same merciless zeal with which political reporters pursue the tiniest steps out of line of ministers and members of Parliament.”

This is why I identified with Blomkvists’s fictional mission; in some ways it captured my own frustrations in a media world for which “the c-word”— as in financial crime—seems must never be spoken. (more)

Bob Chapman Silver will go over $100/oz despite the Government manipulation

Bob Chapman wrote in the International Forecaster of January 22nd, 2011 :"....Since 2000, when we began recommending gold and silver related assets after having exited the stock market in early April, the market is down about 80% versus gold. That means the only reliable guide to value is gold, not the dollar. The dollar has dropped from 13.80 Mexican pesos to 12.00 in a year. Mexico is considered a second world nation and its currency is appreciating versus the dollar. That is becoming typical and will continue to be so. The Mexican economy will grow 4% in 2011, and will have 4% inflation, far better results than in the US, and Mexico has not stimulated its economy. Not only do we have the dollar falling 20% versus gold annually, but also we have the dollar falling versus inferior currencies. That means creditors of US Treasuries are receiving a negative return of over 6%. What can they be thinking of? This is a form of default. Even with these conditions the stock market reflected by the Dow will probably trade between 10,000 and 13,500, while gold and silver again gain a real 20% plus, year after year, as long as budget deficits climb....."

How to Hike Your Social Security Benefits

The Social Security Administration recently put the kibosh on a technique some retirees were using to boost their monthly benefits. But even though that loophole is essentially closed, experts say there are still plenty of ways households can legally maximize the amount of income they receive from Social Security.

In December, the SSA said retirees essentially can no longer do what are called do-overs, or the free-loan strategy. Here's how it worked: You claim benefits at a given age and then years later repay what you received, pay no interest, and then file for benefits again, getting a higher monthly amount because you delayed filing until a later age.

"This strategy is equivalent to a 'no interest' loan from Social Security," said Boston College's Center for Retirement Research.

Not many folks used this strategy, but the Center estimated the do-over tactic could cost Social Security an estimated $6 billion to $11 billion per year. Under the new rules, you can suspend and re-apply for your benefit only within the first 12 months of applying for Social Security, and you can only do it once in your lifetime. (more)

Are Higher Interest Rates Coming?

Slowly but surely, the market is starting to expect higher interest rates from the Fed.

The first indication appeared in November, when our Depth Charge system detected unusual put buying in an exchange-traded fund that tracks short-term Treasuries. Another indication appeared last week, when investors shifted a record $949 million into mutual funds that own floating-rate securities.

The figure, based on data from EPFR Global, followed another record of $859 million the previous week. Floating-rate notes usually pay interest based on the three-month Libor index, which tends to follow the Federal Reserve's overnight lending rate closely. Investors tend to buy them when they expect short-term rates to increase because their coupon payments automatically adjust higher.

"We expect floating-rate issuance to increase over the year as things improve and the Fed starts moving," said Mirko Mikelic, who overseas $18 billion of fixed income at Fifth Third Asset Management. "It's tough to gauge when that will happen, so people are preparing for that." (more)

Marc Faber's Most Provocative Interview Ever: Compares Obama To A Prostitute, Goes Long Treasurys

Earlier, Marc Faber appeared on Bloomberg TV, in what may go down in history as his most scandalous interview ever. When asked, in advance of the SOTU address, what he thinks of the president, Faber, who appears to have had enough with all the bullshit, propaganda, and lies, replies: "I think he's done a horrible job and I think that will continue, I think he is a dishonest person, and nothing has changed... Some politicians are more honest than others. I don't think that I have a very high regard for politicians, I have a high regard for businessmen and for people who work, and not for people who abuse the system continuously. And in comparison to other politicians, I think he came in on a platform as a president that would want to change the government in Washington, and actually he's made it worse... We foreigners, we just laugh at someone like Mr. Obama. I was very critical of Mr. Bush, but at least he had one line and he stuck to that line, and at least he set out to do a thing and he was relatively straight on the thing that he did. He may have been wrong, but at least he didn't change his mind continuously, and didn't prostitute himself." If nothing else, how many other people do you know who will compare, in front of a live Bloomberg audience, the president of the formerly greatest country in the world to a whore?

As for what Faber thinks the real state of the union address should be, he says:

The Most Predictable Financial Calamity in History

In November 2010, the Federal Reserve announced a second round of economic stimulus commonly referred to as Quantitative Easing (QE2). The reason, according to the Fed, was “progress toward its objectives has been disappointingly slow.” So, to try and turn the economy around, the Fed said, “. . . the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter (June) of 2011, a pace of about $75 billion per month.” (Click here to read the complete announcement from the Fed.) QE means the Fed basically creates money out of thin air to buy debt. The current money printing orgy is financing more than half of U.S. government right now. The first round of QE bought toxic mortgage debt and bailed out the bankers.

What was not said in the press release was much more important and may go down as one of the biggest turning points in the history of America. Bringing on QE2 meant QE1 ($1.75 trillion) failed to provide a sustained recovery. It also exposed the $12.3 trillion total spent or loaned by the Fed since the meltdown of 2008 failed to give the economy a lasting boost. The Fed did save some businesses and all the big Wall Street Banks from bankruptcy, but we now know nothing has really been fixed.

This brings me to one really important question. I put this question to a group of well-known market experts, economists, investment bankers and big thinkers. The five guys you are about to hear from have at least one major thing in common. They all predicted tough times for America when most didn’t see it coming. So, I asked them all last week to peer into the not-so-distant future for their take on “What happens when QE2 ends?” (more)

3 Stock "Buys" With Single-Digit Prices

A stock's price -- with no other information -- should mean nothing to investors. It doesn't necessarily reflect a company's size; Citigroup sells for less than $5 a share and yet is the 18th-largest U.S. company by market value because it has so many shares outstanding. Nor does a low price signal a modest valuation. InfoSpace ( INSP: 8.26, -0.02, -0.24% ) , an internet search specialist, sells for just over $8 per share, but that's more than 50 times its projected 2011 earnings per share, making it three times as expensive as the average U.S. stock.

Yet, although a stock's price proves little on its own, a 2006 analysis of 81 years of trading data found that stocks priced below $5 a share beat more expensive stocks (above $20 a share) by more than 0.8 percentage points per month, or 10 percentage points a year. Results for a data set that dates back only to the 1960s, but incorporates more companies, showed a smaller, but still significant difference: Low-priced stocks returned about 0.5 percentage points more per month than high-priced stocks. Perhaps that's why companies seem eager to split their shares when the opportunity arises, and why the average stock price hasn't changed much since the Great Depression, even though consumer prices since then have multiplied more than tenfold.

Below are listed three U.S. stocks with single-digit prices and glowing recommendations, on average, from the analysts who cover them. "Buy" recommendations don't necessarily predict good returns, studies show, but recommendation upgrades do. Opinions on these shares have turned sweeter over the past eight weeks. (more)

8 Companies with a Ton of Cash: ACN , ADBE , ADSK , BBBY , BIDU , EXPD , ORCL ,SNDK

It's no secret that corporations are sitting on huge piles of cash these days. In fact, by the latest count companies have close to $2 trillion in cash and other liquid assets on their books.

While it's understandable that companies are a little gun-shy after the recent economic downturn, as the economy improves the issue becomes: what do these companies do with all of that dough?

That's not a bad problem to have.

Companies with lots of cash on hand are able to capitalize on various investment opportunities fairly easily. They can make acquisitions or grow organically without going to the costly debt or equity markets in order to fund their growth. And if they do seek financing, investors will require much lower rates of return than if the company was cash-strapped.

Secondly, companies with plenty of cash can reward shareholders through stock buybacks or dividend payments. This is especially true of mature companies. Larger companies have fewer growth prospects, so it makes sense to return an increasingly large portion of earnings to shareholders.

Think about Microsoft (MSFT - Analyst Report) in the 1990s compared to the 2000s. The company grew tremendously for several years, but inevitably that growth slowed. Now the company rakes in the dough and pays out a decent amount to its shareholders. It began paying a dividend in 2003 and paid a special dividend of $3.00 per share in 2004. The company recently raised its quarterly dividend 23%. Expect more dividend hikes in the future. (more)