Bloomberg Markets - February 2011 US

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Real Silver Highs

Thanks to its awesome autumn rally, silver has become something of a rock star in the commodities world. Investors and speculators alike are enthralled with this white metal. But with it just hitting new 30-year highs, many on Wall Street suspect silver is stretching to bull-ending extremes. However once silver’s modern history is recast into real inflation-adjusted terms, this metal’s secular bull is still looking young.

For any long-term price comparisons, over a decade, adjusting for inflation is absolutely essential. The US Federal Reserve is constantly creating new fiat dollars out of thin air, cheapening all the other ones already in existence. When the money supply grows faster than the pool of goods, services, and investments on which to spend it, nominal prices rise. Relatively more dollars compete for relatively fewer things to buy, driving up prices.

You may be old enough to remember 1980, the end of silver’s last secular bull. Back when silver hit its all-time nominal (not inflation-adjusted) high of $48 per ounce, the US median household income was under $18k. Across the nation, new houses averaged just $76k while new cars ran less than $6k! A candy bar went for a quarter. Obviously a dollar back then went a lot farther than a dollar today. The Fed’s inflation since has relentlessly eroded each dollar’s real (inflation-adjusted) purchasing power.

So comparing $30 silver today to $48 silver in January 1980 is grossly misleading, it isn’t even close to being an apples-to-apples comparison. We have to adjust past prices for inflation in order to see them rendered in today’s dollars, which are the only dollars we really understand. The purest way to do this is to adjust past prices for growth in the Fed’s money supply, minus real economic growth. If money ramps by 8% and the US economy grows by 3% in any given year, then actual inflation is probably close to 5%. (more)

Cartoon: Da Bears Talk China Currency Manipulation

West European Debt Riskier Than Region's East for First Time: Euro Credit

Western European government bonds are riskier than emerging-market debt for the first time as investors brace for $1.1 trillion of borrowing from euro-region nations this year.

The Markit iTraxx SovX Western Europe Index of credit- default swaps insuring the debt of 15 countries, including Germany, Greece and Portugal, climbed to 7 basis points more than the Markit iTraxx SovX CEEMEA Index linked to Romania, Turkey and Ukraine, according to data provider CMA. The developed nations were 160 basis points more creditworthy than their emerging-market peers as recently as February.

Portugal’s borrowing costs surged at a six-month bill sale this week, the first of Europe’s high-deficit nations to test investor demand in 2011 after the threat of default forced Greece and Ireland to seek bailouts last year. Spain and Italy together need to raise 317 billion euros ($413 billion) this year, according to BNP Paribas SA.

“Concerns about the periphery are dragging down western Europe,” said Harpreet Parhar, a strategist at Credit Agricole SA in London. “Emerging markets have solid growth stories and are not directly weighed down by peripheral issues.” (more)

JP Morgan Chase Rigging the Silver and Gold Markets - Bob Chapman

Guest Post: A Brief History Of Silver Manipulation

A Brief History of Silver Manipulation

The silver fairy tale of the brothers Hunt

In the early 80’s the attempt of the Brothers Hunt, Nelson Bunker and William Herbert Hunt, to fully clamp down the silver market was one of the most spectacular but at the same time also one of the most unsuccessful financials plans within the then fair world. Despite that the brothers failed in their attempt to clamp the silver market, they have succeeded to make a outright mess of the precious metals market and lose one of the largest fortunes in the world in no time.

The expansion of the Hunt Empire

Nelson Bunker Hunt and William Herbert Hunt were born in one of the richest American families. Their father Haroldson Lafayette (also known as H.L. or Arizona Slim), had acquired a fortune during the 20s and the 30s in the Texan oil industry. By investing these oil revenues in successful companies, the Hunt family grew into one of the most prosperous families from all over America. When H.L. died in 1974, he left his next of kin therefore an immense capital. H.L. Hunt had 14 children at three different women, 6 with his legal wife, 4 from a bigamist marriage and another 4 at one of his mistresses. Bunker and Herbert were two full-fledged brothers, namely the second and the third son of H.L. Hunt and his first wife Lyda Bunker Hunt. When Bunker and Herbert just started to get a grip on the silver market the 70’s, their capital was estimated around 13 billion dollars. H.I. Hunt’s logical successor and next boss of the Hunt Empire was originally his eldest son Hassie. However, his plans were thwarted when the same Hassie during his twenties had to do to with psychiatric problems and underwent various treatments without success. H.L. therefore had no choice but to name his second son as successor to lead. In the beginning, however, Bunker showed not the gift of his father in order to locate new oil fields. Bunker lost in his early years millions of dollars by error self-rated and fruitless attempts to find new oil fields for the Hunt Empire Carlo. But once Bunker learned how to do it after a few year, he did it immediately with verve and with style. He found an immense Libyan oil field, Sarir Field, which turned out to be one of the largest oil fields in the world. The discovery of this oil field swept into a seesaw the losses which he had piled up in the previous years from the table. In the early 70’s, he and his brother Herbert took over the Empire forever on. (more)

Percentage of Stocks Above 50-Day Moving Averages

The chart shows the percentage of stocks above their 50-day moving averages in the S&P 500 and its ten sectors. As shown, the level remains at 80% for the entire S&P 500, and it hasn't been able to reach the highs seen during prior rallies over the past year.

Three sectors have more than 90% of stocks above their 50-days, and it may be surprising to see that the Financial sector is one of them at 93%. The Industrial sector has the highest reading at 98%, while Energy is at 95%. The two Consumer sectors and Utilities have the weakest breadth readings at the moment. Consumer Discretionary is at 66%, Consumer Staples is at 59%, and Utilities is at 47%. (more)