Saturday, April 23, 2011

Gallup Poll: Percent of Americans Owning Stocks Lowest Since Poll Started in 1999

It is often said the U.S is a stock ownership society as "60-65%" of the people own stock. I've often argued that is misguided since quite a few might own $2200 in a ROTH IRA or $3400 in a workplace 401k. [Mar 9, 2010: Nearly Half of Americans Have Less than $10K for Retirement, a Quarter Less than $1K] While this technically puts them in the 'stock ownership' society, it's really a size stake that is not going to affect their lives but it makes for good story when we say "Main Street = Wall Street".

Last November, as The Bernank told us he will make us all rich as he could push asset pricesupward.... sorry, I mean stock prices upward (his actions have no effects on commodities - just ask him)... we showed how skewed any wealth effect would truly be to the top end of the economic pie. With the top 1% owning 38% of equities, and the next 9% owning 43%, about 80% of the Bernanke magic would accrue to the top 10% of society. (I am sure most readers are in the top 10%, so I assume we should be giddy) But if we are being honest with ourselves, the true 'stock ownership' society is that top 10%.

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Of course the dollar devaluation and rise in commodities (which again, the Fed has made clear they have NOTHING to do with) happening concurrent to the global liquidity flood, is having real effects on Main Street- but this time on the other side of the economic food chain. While the widely quoted company line is food and energy costs are a far smaller proportion of a person's expenses in the U.S. (true in the aggregate) than in other countries, it really depends about*which* Americans are you talking about. Those who can least afford inflation in said areas, are the ones taking the most dramatic hit. And you can bet they don't have Etrade accounts to offset the pain they are experiencing in their daily expenses.

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But going back to the stock ownership thesis, a new Gallup poll shows the lowest percentage of Americans owning stocks since the survey started in 1999, at 54%. It has been a dramatic drop since 2008. This should not come as a surprise as a lot of former stock holders were most likely former middle class working Americans. I assume many had to liquidate what little they might have had in markets to help pay the bills. Others may just have given up altogether on the market after a decade of bubbles and collapses in a marketplace dominated by 'long only' instruments.

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So to review, the stock ownership society is just over 50%ish of Americans. That figure is heavily skewed to the top 10%, which own 80% of the assets. The overall ownership rate has fallen sharply the past few years as fewer people partake. But the vast majority of that 50%ish has relatively small amounts of Netflix stock and hence the Bernank's "wealth effect" (apparently the third Fed mandate) continues to accrue to a small segment of the population. While his war on the dollar (a store of our savings) punishes many more in the populace. All in all, par for the course in Cramerica.

BlackRock Issues Refutation Of SLV Fraud Allegations; Is It Time To Panic For SLV Holders?

That over the past few years there has been a substantial push to expose some of the chicanery at the SLV iShares silver ETF, especially among the non-indoctrinated blogosphere, is no surprise. After all fear of a massive paper silver wipe out is not only the reason for success of Eric Sprott's physical silver ETF, but for the massive and consistently record premium over NAV of the PSLV. Yet up until now, we were not all that concerned about such allegations (despite having written about this ourselves on several occasions). After all, the one thing that would essentially validate such, at time exorbitant, allegations, was missing: a formal refutation. That is, until now. Kevin Feldman, a Managing Director in the iShares unit of BlackRock, has just blasted out the following email which we were lucky enough to become privy to. Basically, we now have the one and only thing we were missing: an official denial of all the "rumors." It may now be time to abandon the SS SLV, because if this letter is the best defense iShares can muster, then SLV holders may be in trouble. But better confirmation than. And leaving the content of the letter aside, its existence, and that BlackRock itself is willing to engage the tinfoil hat clad blogosphere, is the biggest red flag so far...

What’s in the iShares Silver ETF? Silver.
By Kevin Feldman

Leased silver? Derivatives? Phantom silver?

No, no and no.

I’ve seen a lot of comments like the one following this Seeking Alpha post, speculating on the various ways that iShares Silver Trust (SLV) investors could find themselves holding something other than the silver bullion they’d expect.

Every investor interested in buying SLV should first read its prospectus, particularly the Risk Factors section on pages 7-11. You will see the risks involved with an investment in SLV, including the potential for losses and liquidity risks.

What you won’t see are risk factors around SLV holding derivatives, i.e. silver futures, BlackRock or the trust custodian leasing SLV’s silver(the trustee is authorized to sell silver in the smallest amounts required in order to pay expenses), or SLV not holding sufficient silver to correspond to all shares outstanding, all of which SLV is not permitted to do under its prospectus or current legal structure.

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. In the case of SLV there are multiple safeguards in place. For one, it’s structured as a grantor trust, which means the trust (on behalf of its shareholders) has the legal right of ownership to the silver it holds. JPMorgan Chase Bank, N.A., London branch, provides custodial services for storing the silver, but has no legal rights to SLV’s silver holdings. Investors can see the serial numbers of all the silver bars in the trust here and can review an independent audit of the trust’s silver here. (See chart showing total shares outstanding vs. total ounces of silver in the trust below).

Source: BlackRock 4/28/06 (launch date) – 4/1/2011

Another concern revolves around ETF creation and redemption. I’ve gathered from many posts and comments that there is a misunderstanding about the role of Authorized Participants who facilitate trading in SLV through the creation of new shares when demand is high. Creating new shares does not expose existing SLV shareholders to some new mysterious risk. During the creation process, the AP exchanges physical silver for new shares, which are issued by Bank of New York Mellon (SLV’s trustee) on behalf of BlackRock Asset Management International Inc. (the trust’s sponsor). SLV’s trustee and custodian ensure proper receipt of the silver before new SLV shares are released.

I recognize we live in a skeptical time, especially following the events of 2008, and it’s smart to question whether your investments are doing what you think they should be doing. One of our key tenets here at iShares is transparency, which means we make every effort to educate potential investors on how each ETF works and what it holds. In the case of SLV, it’s a very straightforward answer: silver.

iShares Silver Trust (the “Silver Trust”) has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus and other documents the Silver Trust has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting www.iShares.com or EDGAR on the SEC website at www.sec.gov. Alternatively, the Silver Trust will arrange to send you the prospectus if you request it by calling toll-free 1-800-474-2737.

Investing involves risk, including possible loss of principal. The iShares Silver Trust is not an investment company registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act. Shares of the Silver Trust are not subject to the same regulatory requirements as mutual funds. Because shares of the iShares Silver Trust are expected to reflect the price of the silver held by the Silver Trust, the market price of the shares will be as unpredictable as the price of silver has historically been. Additionally, shares of the Silver Trust are bought and sold at market price (not NAV). Brokerage commissions will reduce returns.


Shares of the Silver Trust are created to reflect, at any given time, the market price of silver owned by the trust at that time less the trust’s expenses and liabilities. The price received upon the sale of shares of the Silver Trust, which trade at market price, may be more or less than the value of the silver represented by them. If an investor sells the shares at a time when no active market for them exists, such lack of an active market will most likely adversely affect the price received for the shares. For a more complete discussion of risk factors relative to the Silver Trust, carefully read the prospectus.

Following an investment in the iShares Silver Trust, several factors may have the effect of causing a decline in the prices of silver and a corresponding decline in the price of the shares. Among them: (i) A change in economic conditions, such as a recession, can adversely affect the price of silver. Silver is used in a wide range of industrial applications, and an economic downturn could have a negative impact on its demand and, consequently, its price and the price of the shares. (ii) A significant change in the attitude of speculators and investors towards silver. Should the speculative community take a negative view towards silver, a decline in world silver prices could occur, negatively impacting the price of the shares. (iii) A significant increase in silver price hedging activity by silver producers. Traditionally, silver producers have not hedged to the same extent as other producers of precious metals (gold, for example) do. Should there be an increase in the level of hedge activity of silver producing companies, it could cause a decline in world silver prices, adversely affecting the price of the shares.

The amount of silver represented by shares of the iShares Silver Trust will decrease over the life of the trust due to sales necessary to pay the sponsor’s fee and trust expenses. Without increase in the price of silver sufficient to compensate for that decrease, the price of the shares will also decline, and investors will lose money on their investment. The Silver Trust will have limited duration. The liquidation of the trust may occur at a time when the disposition of the trust’s silver will result in losses to investors.

Although market makers will generally take advantage of differences between the NAV and the trading price of Silver Trust shares through arbitrage opportunities, there is no guarantee that they will do so. There is no guarantee an active trading market for the shares, which may result in losses on your investment at the time of disposition of your shares. The value of the shares of the Silver Trust will be adversely affected if silver owned by the trust is lost or damaged in circumstances in which the Silver Trust is not in a position to recover the corresponding loss. The Silver Trust is a passive investment vehicle. This means that the value of your shares may be adversely affected by trust losses that, if the trust had been actively managed, might have been possible to avoid.

Shares of the iShares Silver Trust are not deposits or other obligations of or guaranteed by BlackRock, Inc., and its affiliates, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.


BlackRock Asset Management International Inc. (“BAMII”) is the sponsor of the Silver Trust. BlackRock Fund Distribution Company (“BFDC”), a subsidiary of BAMII, assists in the promotion of the Silver Trust. BAMII is an affiliate of BlackRock, Inc.

Although shares of the iShares Silver Trust may be bought or sold on the exchange through any brokerage account, shares are not redeemable except in large aggregated units called Baskets.

When comparing commodities and the iShares Silver Trust, it should be remembered that the sponsor’s fee associated with the Trust is not borne by investors in individual commodities. Buying and selling shares of the iShares Silver Trust will result in brokerage commissions. Because the expenses involved in an investment in physical silver will be dispersed among all holders of shares of the Silver Trust, an investment in the Silver Trust may represent a cost-efficient alternative to investments in silver for investors not otherwise able to participate directly in the market for physical silver.

Janet Lowe, "The Triumph of Value Investing: Smart Money Tactics for the Post-Recession Era"

Janet Lowe, "The Triumph of Value Investing: Smart Money Tactics for the Post-Recession Era" [Audiobook, Unabridged]
Gi-d-n Media | 2011 | ISBN: n/a, ASIN: B004I9A3C4 | MP3@64 kbps | 6 hrs 26 mins | 176.06 Mb

Timely advice from value-investing giants, such as Warren Buffett, William O'Neil, Charles Brandes, and David Iben.

After the financial chaos and panic of the last few years, investors are looking to rebuild confidence and learn from the mistakes that led to the crash. In The Triumph of Value Investing, Janet Lowe urges listeners to return to the basic principles of value investing, as taught by the legendary Benjamin Graham, which remain as relevant as ever today. These lessons can help listeners maneuver sanely through any type of economic turmoil and even benefit from further disruptions.

Lowe also includes interviews with such leading value investors as Warren Buffett, William O'Neil, and Charles Brandes, and analyzes dozens of U.S. and foreign stocks. She walks investors through the steps necessary to apply the principles that define value investing, with special emphasis on investing in biotech, high-technology, and foreign companies. Whether listeners are familiar with value investing or are just discovering it, they will find plenty of fresh information in The Triumph of Value Investing, which covers the latest concepts and players in the market. As Lowe writes, "It is always healthy to check up on the validity of your own thinking. Considering the market breakdowns of the past decade and the confusion and discouragement many individual investors have suffered, this is an excellent time to restudy Benjamin Graham's concepts of value investing and learn how to apply them to a whole range of new challenges."

Bullish on Unconventional Oil Plays

The Energy Report: Is Pathfinder Asset Management a hedge fund?

Taylor MacDonald: Well, I think "hedge fund" would be a bit of a misnomer. We tend to invest on the long side, though we can use derivatives and go short. At the moment, we're much more of an investment fund. We originated as a family office set up to manage the assets of one particular client. After growing these assets organically over the last two years and more than doubling them, we finally decided to become a registered fund and initially will bring on friends, family and business associates' funds, perhaps opening the fund up on a much broader basis at some point.

TER: You've been on the sellside as both an analyst and a banker. Now, you pull the trigger to execute trades. Can you tell me the most valuable thing you learned as a banker and as an analyst that informs your practice today on the buyside?

TM: I would say that the most important thing I learned on the sellside is diligence—doing extensive homework on every deal you're evaluating. And that's a process that continues well after you make that investment by continuing to monitor things very closely. I want to keep a short leash on the insider trading and who owns most of the stock. I want to get to know management and look into their histories and do background checks, if necessary. I want to make sure I know every single aspect about the company. That often leads to site visits, bringing in specialists or hiring consultants to evaluate the technical merits of a given project.

TER: As a banker and an analyst, you had an opportunity to look at companies before they became public, so you had to do a lot of original research. Do you find yourself doing that even after a company goes public?

TM: Absolutely. Once a company is public, obviously, that research becomes much easier due to disclosure requirements. But we still go through many of the same processes that I did when I was on the investment banking side.

TER: Based on your extensive research on oil and gas (O&G), what do you see as the future for energy?

TM: In general, we're very bullish on energy. As early as the third quarter of last year (Q310), we pegged oil as one of our key themes for 2011, and we continue to be very bullish on oil for several reasons. First, monetary policy is a key driver. As long as the Federal Reserve keeps printing money and debasing its currency, a falling U.S. dollar is naturally good for all things priced in dollars—especially key commodities like gold, silver and oil. The second thing is supply and demand pressures, which are decidedly positive and support a rising oil price. The supply/demand gap continues to widen, and cheap barrels of oil are becoming increasingly scarce. This leads O&G companies, and by default investors, to go to riskier political jurisdictions to look for unconventional hydrocarbon sources, apply unconventional recovery techniques and find ways to become more efficient in production.

Put these two core drivers against a shaky Middle Eastern and North African political backdrop, and add the situation in Japan, where multiple gigawatts of power are down due to damaged nuclear reactors as well as Japanese refineries all over the east coast, and the result is that they're going to have to get that power somewhere else. The only way to get that is from oil, and perhaps later from liquefied natural gas. All together, it's an extremely bullish outlook for oil going forward; that's our thesis.

TER: You have a few small-cap companies under management; but I see a lot of micro caps, too. Do you have a special strategy for dealing with the marketability of these shares? (Liquidity may be a precarious term to use in companies of this size.)

TM: Overall, I do that by limiting exposure to those less-liquid companies and including certain liquidity requirements within our portfolio. We help to diversify ourselves. Yes, there is added risk because of liquidity concerns but there's also added risk due to the early stage of operations and low valuations of these companies. Therein also lies the opportunity to get a multiple of your original investment back if you play your cards right. We tend to look for things outside of the norm. We like the unconventional plays and seek out what I describe as "innovation and high potential return," as well as companies that have improved efficiency.

TER: What are some examples of unconventional deals with high potential?

TM: Obviously, cheap barrels of oil are scarce in the world today. One name we're very fond of right now is Africa Oil Corp. (TSX.V:AOI), a Lundin company. It's a company that's exploring major basins in Kenya, Somalia, Ethiopia and other African countries. Of late, Africa has been a boon to the oil and gas industry and Africa Oil, itself, is one of the largest landholders in the East African Rift Basin, which is one of the largest underexplored basins in the world. Both Tullow Oil plc (LSE:TLW) and Heritage Oil Corp. (TSX:HOC; LSE:HOIL) are active in the region. AOI, literally, is hunting in elephant country. It's supported by one of the best management teams and suite of shareholders in the business. CEO Keith Hill has a track record of success from Valkyries Petroleum Corp. and Tanganyika Oil Company Ltd, both of which are private. He's built up and sold multiple companies, and now he's on to the next one. I believe investors will be justly rewarded. In terms of sheer geological potential, Africa Oil should be at the top of any speculative investor's list, especially in the oil space.

TER: Do you think of Africa Oil as a conventional play?

TM: It is a conventional play looking in what I would call "unconventional areas." Considering the world is short on cheap barrels of oil, you're going to have to go to new jurisdictions to find them; that's one of our key themes. This is a growing area where you would potentially find billion-barrel pools.

TER: How about other regions that meet your parameters?

TM: Well, another one finding new barrels in underexplored regions is Tag Oil Ltd. (TSX.V:TAO). It's a junior O&G exploration company that we've been invested in for some time. TAG is focused solely on New Zealand's North Island, and it's been growing conventional production in the Taranaki Basin, which now is at 700 barrels per day and growing rapidly. Planned optimization in 2011 should allow for simultaneous production at all eight of its wells, doubling production. Also recently announced is a new discovery in the same basin at its Broadside location where two successful wells have been drilled. But what we find truly interesting is its exploration permits on the East Coast that cover what could be one of the most intriguing oil-shale regions yet discovered, potentially 12.65 billion barrels of original oil in place. Even if just a sliver of this could be extractable, it still represents considerable potential. TAG is expected to make strides toward the end of this year to see what these shales could have, but you're backstopped by current and growing production from its conventional leases in the Taranaki Basin.

TER: Well, TAG gives you some diversification into a more stable region.

TM: Yes, indeed; and following on TAG's success is a company I would suggest investors' put on their radar screens. We already own it privately, and the IPO is coming next month. It's called New Zealand Energy Corp. The company will be coming out at a considerable valuation discount to TAG. While it has no production presently, it has five times more acreage than TAG in the Taranaki Basin and will be aggressively developing these acres for conventional production. Beyond that, it also will boast roughly the same—if not more—acreage covering potential shale plays in the East Coast Basin.

TER: Approximately what market cap are we talking about here when it opens?

TM: We're probably talking somewhere between $150 and $200 million for New Zealand Energy Corp.

TER: Wow. Any others?

TM: There are two companies I really like that are more about improving efficiency at proven basins and proven areas. One of the companies is PRD Energy Inc. (TSX.V:PRD). We've owned it for awhile and continue to be buyers. The company is headed up by CEO Michael Greenwood, who is the former chief financial officer of Canaccord Financial Inc. (TSX:CF). It's also run by Chief Operating Officer and former Mission Oil & Gas Senior Executive Mark Hornett, who is one of the best operators I know. They originally set the company up to go after gas assets in North America, but the business model didn't work due to low gas prices. So, now the company is on the verge of signing several deals in Europe where it intends to go into old, previously discovered pools that were under-exploited using older technologies. PRD will use modern technologies, such as horizontal drilling and down-hole stimulation to boost recoveries and turn old shut-in wells into gushers. We expect announcements on these earn-in agreements imminently and that the company will be operational in 2011.

TER: And the other company?

TM: East West Petroleum Corp. (TSX.V:EW). It's a relatively new international O&G junior focused on applying new technologies to enhance recoveries from existing conventional oil resources and commercializing unconventional sources of hydrocarbons. The core of the company's business plan is to form strategic alliances with holders of both conventional and unconventional assets. It has a strategic partnership with Kuwait Energy Company where East West is earning into a significant asset portfolio with enhanced recovery and unconventional opportunities. Its management team has a phenomenal track record and includes Dr. Marc Bustin, who was a cofounder of the recently sold Cuadrilla Resources. The team also includes President and CEO Greg Renwick, who has extensive experience in the Middle East and was with Dana Gas (ADX:DANA) and the Honorable Herb Dhaliwal, former minister of energy for Canada. This company is well positioned; it's got a market cap of under $60 million, more than $30 million in cash and no debt. Management has told me that they expect to exit 2011 with 1,500–2,000 barrels of oil equivalent per day of attributable production.

TER: East West has sold off about 25% over the past three months. Was that due to instability in the Middle East?

TM: Some of that could be instability in the Middle East. The people I've spoken with are actually operating in Egypt, and it's just business as usual for them for the most part. I think a lot of that is because of its association with Kuwait Energy Corp. Keep in mind, Kuwait Energy Corp. has assets all over the world and it's going to be working with East West on a lot of them. So, I don't see as much risk as some people do here. This is a wildly undervalued company.

TER: The market cap is at a sweet spot in the $50M–$60M range. It doesn't take a lot of investment capital to double that stock price.

TM: Exactly, especially if the company's able to put out the production numbers it's forecasting.

TER: You've got this extremely bullish picture on energy and oil, particularly now, and you've just outlined your reasons. Companies that service the exploration and production industry also might benefit. Which E&Ps do you like?

TM: We very much look to companies that solve the problems faced by the oil and gas industry. There are two plays we like. The first one is Cortex Business Solutions Inc. (TSX.V:CBX). I spoke about this in my last letter and my first interview with The Energy Report. One area that's largely been overlooked in the O&G business has been invoicing and accounts payable systems. Cortex helps increase efficiency in the business by taking these systems paperless. It sets up a Cortex Network and charges a fee for every document that passes through its system. So, there's no human error and no inefficiency. The company has been building this for awhile and it really wasn't getting any recognition or respect, but then about two years ago, Husky Energy Inc. (TSX:HSE) signed on and mandated that every single one of its +10,000 suppliers had to be part of the Cortex Network or it would no longer do business with them. A number of other major O&G producers came on board, but it wasn't until Murphy Oil Corp. (NYSE:MUR) signed on that Cortex really started to get critical mass.

The last time we spoke, Cortex had only Husky and Murphy Oil. Well, now you've got six other majors who signed on. Those would include Apache Corporation (NYSE:APA) andPetroHunter Energy Corp. (OTCBB:PHUN), Energen Corp. (NYSE:EGN), W&T Offshore Inc. (NYSE:WTI) and others. I'm sure there's a solid pipeline of other majors that are going to be signing onto this system, so each and every hub that you add on will already have suppliers that deal with the other hubs. Now, it's kind of a manifest-destiny scenario for Cortex in my mind. I believe it is about to turn the corner on profitability; and by November or December of this year, we should see that on a recurring revenue basis. I have no doubt that it's going to become an insanely profitable business. Soon, I think you'll see these guys make the leap to other industries, as well, like construction or utilities.

TER: Is a potential customer company required to have a major database system installed, or can Cortex come in and manage a legacy system?

TM: Cortex can absolutely come in and manage a legacy system. It's very easy to sign onto, as well.

TER: I see Cortex down 17% over the past 52 weeks. Does that, in your mind, constitute value?

TM: Yes it does, absolutely. A lot of the speculative froth on the company has subsided and it's become a numbers story. In my view, it's absurd that the share price has drifted the way it has over the last year given all the strides forward the company has made.

TER: You said there was another service provider you liked.

TM: Yes. The other one that I would mention is a company called Ridgeline Energy Services Inc. (TSX.V:RLE),which we've been involved with for a long time now. Initially, it was environmental consulting and soil remediation; but about a year ago, it acquired a technology that uses electricity to separate out any bad stuff in dirty water. It's essentially a water cleaning business. The company decided very quickly that this technology could be used to clean dirty frack water, and there are potential applications for tar sands lakes and steam-assisted gravity drainage operations. The company has put a pilot plant together at a gas-fracking operation in Northern British Columbia, and the first commercial unit is nearing completion; in fact, I was in Las Vegas three weeks ago to check it out.

Water is a key resource, especially in Alberta, and it's actually quite difficult to come by in the volume needed for a fracking operation. Every time you frack a well, you have to drill a disposal well—that costs you upwards of $1M, and then you have to dispose of all this dirty water in the well. Not only that, but you're taking water out of the ecosystem of rivers, lakes and reservoirs. What this technology allows a company to do is take that dirty water out of the frack well, clean it and reuse it in the next well. So, not only are you conserving water but you're stripping the cost out of having to drill a disposal well for every frack well. It's also very interesting that Ridgeline has taken the technology to a tar sands tailing area and was able to separate out pure water.

TER: It sounds like Ridgeline could open up some possibilities for E&Ps to go into areas where communities may not want them now. Do you see that as a distinct possibility?

TM: My vision would be a Ridgeline water truck on every E&P site. But, realistically, the company still has a lot of proving to do. I will say the signs are very encouraging right now.

TER: Taylor, thank you very much.

TM: Thank you, too.

The Economist - 23rd April-29th April 2011 (PDF)



The Economist - 23rd April-29th April 2011 (PDF)
English | 120 pages | HQ PDF | 114.00 Mb



Euro Rises Toward 16-Month High Versus Dollar on Growth Outlook

The euro strengthened toward a 16- month high versus the dollar after a report showed French business confidence was at a three-year high.

The dollar headed for a weekly decline against all its 16 major counterparts as traders reduced bets the Federal Reserve will increase interest rates this year. The Australian dollar traded near a record high as commodity price gains and signs of quickening growth backed the case for higher borrowing costs. The yuan rose to a 17-year high amid speculation China will allow faster appreciation to help temper inflation.

“The euro-zone’s recovery looks solid,” said Hitoshi Asaoka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “As long as inflation is on the upside, market expectations for European Central Bank rate hikes will likely persist, which is euro- supportive.”

The euro climbed to $1.4563 as of 11:06 a.m. in London from $1.4552 yesterday, when it rose to $1.4649, the highest level since December 2009. The common currency appreciated 0.3 percent to 119.41 yen. The dollar was at 82.01 yen from 81.85 yen.

Currency trading is forecast to be lower than usual today due to the closure of markets in the U.K. and U.S. for the Easter holidays. Asian markets such as Singapore, Hong Kong, Australiaand New Zealand were also shut.

French Sentiment

A French index of sentiment among factory executives was unchanged at 110 in April, the highest since December 2007, national statistics institute Insee said today.

The ECB, which aims to keep inflation below 2 percent, raised its key interest rate by a quarter-percentage point to 1.25 percent this month. Policy makers left the door open for further increases even as a sovereign debt crisis damps growth in peripheral nations such as Greece, Portugal and Ireland.

The Dollar Index headed for a fourth weekly decline before the Federal Open Market Committeemeets to review interest rates on April 26-27.

The likelihood policy makers will raise the target rate for overnight lending between banks by December fell to 25 percent yesterday, from 33 percent a week ago, Fed funds futures showed. The Fed has kept its benchmark at zero to 0.25 percent since December 2008.

Most of the 50 analysts surveyed by Bloomberg last month said they expected the Fed to keep its bond portfolio stable for some time after the $600 billion program ends in June.

‘Hopeless Situation’

“The dollar is in a hopeless situation, paralyzed by low rates, a fact likely to be reaffirmed by the FOMC next week,” analysts led by Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., wrote in a note yesterday.

The Dollar Index, which tracks the dollar against the currencies of six major U.S. trading partners, slipped less than 0.1 percent to 74.082.

The Australian dollar was poised for a fifth weekly gain against the greenback as gains in commodity prices and stocks spurred demand for higher-yielding assets.

“Commodity markets are doing well, boosting the Aussie dollar’s allure,” Junichi Ishikawa, a Tokyo-based market analyst at IG Markets Securities Ltd. wrote in a note to clients.

The MSCI World (MXWO) Index has climbed 1.7 percent this week while the Thomson Reuters/Jefferies CRB Commodity Price Index has gained 1.3 percent.

Interest Rates

Australia’s benchmark interest rate of 4.75 percent compares with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nation’s higher-yielding assets.

The Aussie climbed 1.7 percent this week. The currency was little changed today to $1.0747 after reaching $1.0775 yesterday, the strongest level since it was freely floated in 1983.

The yuan headed for a sixth weekly advance. The currency’s greater flexibility may “ease imported inflation pressures,” Hu Xiaolian, a deputy governor at the People’s Bank of China said, according to the transcript of an April 15 speech published this week.

Faster appreciation of the yuan may be a tool for curbing inflation in China, Wang Yong, a professor at the Chinese central bank’s training center in the city of Zhengzhou, wrote in a commentary published in today’s Securities Times newspaper.

“There’s lingering talk of a possible China revaluation of the yuan,” said Okasan’s Soma.

The yuan strengthened 0.2 percent to 6.5067 per dollar after touching 6.5089, the highest since the country unified official and market exchange rates at the end of 1993.

Friday, April 22, 2011

Hunt Brothers $50 Silver Truth, How They Capped Gold…Yes, GOLD!

It began with a shoot-out at the Circle K Ranch. The 12 best marksmen would ride shotgun as the world’s largest, privately owned stockpile of silver was secretly transferred into secure vaults.

No, this wasn’t a shipment from Nevada’s Comstock Lode to San Francisco in the Wild West of the 1870s. This was the 1970s, and the precious metal was being moved from New York to Switzerland.

Shining silver under a moonlit sky, three unmarked 707s waited at LaGuardia Airport. The Circle K cowboys stood guard, shotguns in hand. 40 million ounces of bullion—amassed by Nelson Bunker and William Herbert Hunt—were loaded in, and the planes took off under cover of darkness to their secret destination…

Millions of people have heard the “official” story of how the larger-than-life Hunt brothers drove the price of silver from under $2 an ounce to over $50 in an attempt to corner the market. At one point, the two colorful Texas oilmen owned the rights to more than half the world’s silver supply. But then it all came crashing down on Silver Thursday, March 27, 1980, when silver fell to under $11 an ounce. Instead of making billions, the richest men in America ended up losing the bulk of their family’s fortune.

The Hunt Brothers—Sacrificial Lambs in Wolf’s Clothing

I’ve been studying the Hunt Brothers, and I have a different take on what really happened. Because of the way they flaunted their wealth, because of ties they had to the Middle East, and because they did invest so heavily in silver, the Hunt brothers were the perfect scapegoats for the anger and frustration most Americans felt towards the lagging economy of the day.

I believe that Bunker and his brother were used by the Federal Reserve, in collusion with COMEX and the Chicago Board of Trade (CBOT), to cap the price of gold—YES, GOLD—and save the U.S. dollar.

Inflation Indignation

The period leading up to silver’s spike was fraught with inflation, stagnant economic growth, and political upheaval. In 1965, President Johnson increased deficit spending to finance his Great Society programs, tax cuts, and an unpopular war in Vietnam.

In 1971, realizing that the U.S. Treasury didn’t have enough gold to redeem all the dollars held by foreign governments and investors, President Nixon pulled the United States off the Bretton Woods monetary system—the last vestiges of a pseudo gold standard. This action effectively created a worldwide fiat currency system that continues to this day.

OPEC-generated oil shortages, along with real food shortages, fueled public fears that the U.S. economy was in crisis. By the late 1970s, inflation had become public enemy number one.

The Hunt for Silver

The Hunt brothers could see the writing on the wall. With their great wealth being steadily eroded by skyrocketing inflation, they needed an asset to which they could safely anchor their massive oil fortune. At first, they thought of gold—history’s safe haven. But in 1973, U.S. citizens were not allowed to own gold, and Bunker Hunt thought the gold market was too easily manipulated for government purposes.1

So the Hunt Brothers turned to silver, and started buying it at about $2 an ounce. Total world silver production was dropping, while industrial silver consumption was exploding. And once government and private silver stocks ran out, the shortfall between supply and demand was certain to drive the price of silver skyward.

By early 1974, the Hunt brothers had purchased futures contracts (agreements to purchase commodities in the future at a pre-determined price) for another fifty-five million ounces of silver. This was on top of the massive hoard of physical silver they already owned.2 In April, Bunker Hunt stopped in New York to visit the COMEX trading floor for the first time. When he walked onto the floor, the normal frenzy of activity came to a screeching halt. Who was this fat Texan in thick plastic glasses and a cheap blue suit? Rumors began floating that the Hunt brothers were attempting to corner the market.

Those who believe that the Hunt brothers were out to corner the silver market point to Bunker and Herbert’s huge appetite for silver futures as proof that they were trying to manipulate prices. I see it a different way.

The Hunt brothers used their positions in silver futures to acquire more of the physical metal. Aware that cash was continually losing value due to inflation, they settled their futures contracts with physical delivery of bullion, instead of cash, as a hedge against the government currency monopoly and global turmoil.

I believe that the Hunt brothers were more concerned about long-term survival and preservation of their family’s wealth than they were with short-term speculative profits. That would merely have added a few more paper dollars to their vast sums of rapidly depreciating currency. Bunker Hunt was well versed in Germany’s disastrous hyperinflation of the early 1920s, and he was genuinely concerned about going broke holding paper assets.

In an interview with Barron’s financial magazine, Bunker kept quiet about his silver investments. But he made no secret of his distaste for the dollar: ‘‘Just about anything you buy, rather than paper, is better,” he said. “…If you don’t like gold, use silver, or diamonds or copper, but something. Any damn fool can run a printing press.”3

If You’re Losing, Change the Rules

By October 3, 1979, silver hit $17.88 an ounce.4 The two major U.S. exchanges, COMEX and CBOT, started to panic: They held a measly 120 million ounces of silver between them, an amount typically delivered in a busy month.5 With silver prices pushing to new heights as new buyers rushed in, the exchanges became fearful that a default (inability to deliver) was imminent.

The silver rush continued to accelerate, led by the Hunt brothers and their Saudi Arabian business partners. The Commodity Futures Trading Commission (CFTC), the government’s futures watchdog, had become seriously alarmed at the prospects of a shortage on the exchanges, and tried persuading Bunker Hunt to sell some of his silver.

The billionaire resisted, believing that silver was a long-term play with an integral role in the future global economy. The CBOT, backed by the CFTC, finally decided to put a stop to the Hunt brothers’ buying—by changing its rules.

Margin requirements were suddenly raised, and traders could hold no more than 3 million ounces of silver futures; those holding more were placed in forced liquidation. Bunker Hunt cried foul, accusing exchange board members of having a financial interest in the markets—an accusation that would later be proven true.

Then, the U.S. Federal Reserve and its chairman, Paul Volcker, added to the Hunt brothers’ troubles by strongly encouraging banks to stop making loans for speculative activity.

When Silver Sneezed, Gold Caught the Cold

On January 7, 1980, the other major U.S. exchange, COMEX, changed its rules also. Investors were limited to 10 million ounces in futures contracts, and any amount above that had to be liquidated by Friday, February 18.6 On the very next trading day, Monday, January 21, as silver reached a record high of $50 an ounce, the Hunt silver hoard peaked at a mind-boggling $4.5 billion, (that’s $43.5 billion in Shadowstats CPI-adjusted 2011 dolars!)5

On the same day that silver hit $50 and silver futures topped out at $52.50, gold’s price set a new record of $850 and gold futures peaked at $892. COMEX, terrified that it would be forced into default, announced—with the backing of the CFTC—that trading in silver would be limited to liquidation orders only, eliminating any buyers.

With no new buyers, the price of silver could not go up. So this rule was basically the same as saying, “Until this rule is lifted, the price of silver will only go down.” Of course, silver began to plummet, and on that same day so did gold.

Was it just a coincidence that gold and silver peaked at the same time?

Could it be that many large silver traders also held gold?

Wouldn’t the gold traders on the exchanges have known what happened to the silver traders and said to themselves, “Oh my God…if they can do that to silver, then gold is probably next”?

From Billions to Bust

On Silver Thursday, silver dropped from $15.80 to $10.80 an ounce. The stock market also crashed, fueled by rumors that the Hunt brothers would liquidate stocks in order to cover their silver losses. Because most of their silver bullion had been purchased at under $10 an ounce, the Hunts were still ahead of the game on their physical silver. But in the futures market, where their average purchase price was near $35 an ounce, it was a different story.

It became easy for the government to label the Hunt brothers as market manipulators—both in the court of law and in the easily swayed court of public opinion. Bunker Hunt filed for personal bankruptcy and was charged with trying to corner the silver market. He settled with the IRS for $90 million and was fined an additional $10 million by the CFTC.7

Why were the Hunt brothers torn down? Gold and silver are the canaries in the coal mine: Their spiking prices reflected the public’s loss of confidence in fiat currencies—like the U.S. dollar. So, the government and banking establishment had a vested interest in keeping gold and silver prices from exploding.

Do you think it’s possible that the Federal Reserve may have realized they could suppress the price of gold and save the dollar—while making it look like they were really protecting everyone by going after the Hunt brothers?

After scrutinizing the evidence, my conclusion is that the Hunt brothers were sacrificial lambs. The Hunt brothers broke no laws. The CFTC, COMEX and CBOT simply changed the rules in the middle of the game. And the U.S. government, eager to stop the rush to gold and silver that threatened the credibility of its own fiat currency, had no problem looking the other way.

Even Jeffrey M. Christian, Managing Director and founder of CPM Group and one of the world’s foremost authorities on the markets for precious metals, told me in an interview that he believed the Hunt brothers only added between 75¢ and $1.00 to the price of silver.

Silver Linings: What the Hunt Brothers Can Teach Us Today

The Hunt brothers got into trouble because they exposed themselves to a huge amount of risk through their leveraged investments. Leverage makes a bigger impact when you’re losing than it does when you’re winning: It can be as blunt as a bowling ball on the way up, but as sharp as a surgical laser on the way down.

In my view, there’s simply no substitute for physical ownership of your own gold and silver. This is especially important today, as we see the fiat currency system showing severe signs of instability.

Whether the Hunt brothers were victims of their own greed, the greed of board members on the exchanges, a desperate attempt by the Fed to save the dollar, or some combination of these things, it’s clear to me that the fall of silver in 1980 brought gold down with it and bought the dollar some extra time.

We have no way of knowing how high gold and silver would have gone if the government and banking establishment hadn’t gone after the Hunt brothers. We’ll never know if the dollar would have survived. We do know that gold peaked when silver peaked, and we know that gold fell when silver fell.

In the near future, both of these metals may again start taking off into the stratosphere. And this time, the Fed won’t have the Hunt brothers around to stop them.

- Mike Maloney