We still have a rough ride until year end.

We have about 12 weeks left to finish off 2009 and I expect this period will be a messy one with a series of events likely to hit the preverbal fan..

First of all it looks like Capmark Financial a commercial real estate made up of left overs from the crap heap once called GMAC is on the verge of bankruptcy. Now this is not huge in scale when compared to GM’s problems but it is certainly a sign of that the commercial property bubble is following the residential market down.


Even more damaging could be the expected bankruptcy filing for CIT

The impact to the U.S. economy could be huge if 1 million small businesses suddenly find themselves without a credit. Yes, some will find new banks, many however will flounder as they scramble to find new sources of credit either because banks are not lending or simply because they are so close to the edge that the very instant they loose their credit lines they will be forced to close shop. I don’t know how many people the average small business employs but if we say 10 employees each with a 10% failure rate after companies that lose their credit, we easily can add 1 million people to the unemployment rolls.

CIT has been trying to make a debt for equity swap deal with creditors but it’s starting to look more like a bankruptcy filing is imminent; today’s announcement the CEO plans to resign certainly seems like the old rat and sinking ship scenario.

The biggest issue could be Latvia’s failed attempts to meet the IMF’s austerity demands required for the more bailout money. Latvia’s foreign denominated debt makes it very hard for the Government to act in a way acceptable to their citizens, yet fulfill their IMF obligations. If they can’t sell more austerity to the populous the only other answer is to devaluate the currency, loosing EU and IMF financial aid and making default on foreign debt nearly inevitable. Recent government statements
claim they will meet the prerequisites for the international aid but how do they plan to sell more austerity when GDP is down nearly 20% and unemployment is rocketing?

A failure to make the required cuts and a forced evalution could also force Estonia and Lithuania to break their own currency pegs and endanger their planned adoption of the Euro. While the consensus says the EU and the world economy is now strong enough to weather a Baltic crisis it, other east bloc countries will face contagion and Swedish banks in particular will take some heavy hits that could dampen all the bold talk of recovery. Of course if the concensus is wrong it might plunge us back into a world wide crisis.

On top of these big stories small banks will continue to implode in the U.S. with the likelihood of reaching the 100 failed bank mark this Friday all while the FDIC struggles to deal with the losses.


So when someone comes on the TV and says commodities are over bought, gold has no real value and silver is simply a industrial metal remember that fiat money, equities, bonds, your business and even your job may only be fleeting things, but silver and gold have had real and substantial value throughout history.

I have no doubt that my $1100 and $20 target highs for the year will be attained very soon and maybe even greatly surpassed. I see that my blog hits are up, ad revenue has recovered and I’m getting more direct mail from bullion novices every week all indicating to me that the bull market in metals is certainly far from over.

Still bullish on silver.

I've been wary of jinxing the metals breakout by posting on it but here it goes. Some chartists are claiming that this week's new high is very significant and a signal for a continued bull move but just as many claim we are well over bought and are still due a significant correction, so what are you to believe?

I believe gold's new high means the next low will be higher than the previous low, all good for the long term. If it keeps running I'm OK with it but if it dips I know it will dip less than last time, so I'm OK with that too. Certainly no one is going to fix the fundamentals of debt, debasement of currency and fraudulent paper any time soon,so why worry? The bull will continue in its own time just be calm and patient.

Since I don't trade my bullion I do have a small gold ETF stake that I intend sell in the $1070-1100 range should it go there too quickly or it trades horizontally for more than a week. I figure fast gains mean fleeting exuberance; probably not the perfect strategy but I such at timing so I'm taking some off the table this leg rather than ride it both ways. If we actually hit $1200 this year as some are predicting I will reenter on in a bear ETF, expecting a $150-200 correction.

Despite the recent run up, silver still gets little mention, little respect and very few comments on the few occasions when a newspaper lowers itself to write on the subject.

It's also disheartening that on this leg up silver is no where near a new high. Obviously the argument that silver is no longer a monetary metal is tainting the "western" market but there are still good reasons to stay bullish on silver such as new mints generating retail sales in China and now the HDFC bank of India (a big retail gold seller) is looking at adding silver bars to its product line.

These are the biggest markets in the world and since both China and India believe gold and silver are monetary assets this can be seen as nothing but mega bullish for long term prices. What the west believes is becoming less and less relevant, if China and India declare Yaks are a form of money, yaks would be a very good investment. You heard it here first, we are going to the Yak standard!

Another bullish point reported by the Financial times is the possibility that new positional limits on futures may drive some institutional investors to physical ownership of commodities instead of paper. This is the kind of action that will help FIX the commodity market and in particular help end the comex fraud.

Things still look very bad for the U.S. economy and good for metals long term, don't be tricked by claims that this is the top and bail on your physical positions, sit tight and save up to accumulate more on the next dip.

Rolfe Winkler at Reuters writes a decent little piece on owning gold as insurance and with the silver market being even smaller, this argument is even more valid for silver investment.

Have a good week, keep watching the spot prices, and keep the cackles and the screams of "I told you so" to a bare minimum. I probably won't ;) but try to be a better person than me!

Summer in review

Even if the much touted recovery is real (which I do not believe) there is still a great deal of pain ahead for many people.


Over 500,000 U.S. workers still lost their jobs last month and while this number it may shrink over the next year or so what about all those fresh faced graduates who don’t get counted as unemployed having never been employed in the first place? What about all those people in the first wave of layoffs that are about to lose their unemployment benefits and will in some bizarre government accounting scheme no longer be counted as jobless?


These unemployed Americans (counted or uncounted) still have bills and mortgages to pay, Some of these will undoubtedly lose their homes; fail to pay their credit cards, property taxes and car payments. Banks, credit companies, car manufacturers, local and State governments will all share this pain as will debt free citizens who will have theirs savings and purchasing power devalued as more and more new money is created to keep the illusion alive for just a while longer. Commodities are rebounding with food and energy leading the pack; and you should remember that it is possible to have inflation in the money supply and rising prices in commodities while housing is destroyed simply because the obscene glut of properties which is still too big to be effected by the current level of money creation. Food and energy however are not in a major glut and will react much sooner to monetary inflation.



Here in Canada we’ve seen some signs of marginal growth in jobs (mostly part time, private sector) but with new bodies entering the work force this has not been enough to lower unemployment.

In Canada food costs are rising and even housing is stronger than I would have guessed despite all the deflationist arguments.



As for the reported recovery, if there is no employment growth who will spend enough to create this magical recovery? Canadian industrial capacity has dropped to 67.4%, this is not the sign of a recovery.



On the world stage this article from the weekend shows that a ghost fleet of 500 unutilized cargo ships is growing near Singapore as world trade dries up. Not only has shipping dropped off but orders for new ships are negligible and many existing new builds will be never be delivered as purchasers default on completion payments.

Long term some shippers and some ship builders will undoubtedly fail.


“Surely there is some sign of recovery?” you might ask.


Well the TV pundits certainly claim that renewed earnings and increased stock values show a recovery but how many of those earnings are from Government handouts or access to cheap money at the discount window? How much of those earnings are from cost cutting and efficiencies that cannot be repeated year after year? In my opinion unless things like total sales numbers and non service jobs improve there is no recovery. The false economy of having entire countries that do nothing but sell shit they didn't make with money they borrowed from overseas cannot and most certainly will not last much longer.


One major story of the summer was the continued destruction of U.S. regional banks now totally 92 for the year. My prediction for the year was only 78 and to pass that goal early in August makes it obvious that 120 by years end is now doable.


Perhaps the most important stories of the summer was the court ruling stating the Fed must disclose where the $1.5 Trillion they gave out went and list the assets pledged against it. The immediate appeal was no big surprise as transparency to the Fed is like sunlight to a vampire, a death sentence. Disclosure will prove the Fed and the Government used much of the $1.5 trillion to buy off foreign banks that were making waves about the crap CDO Wall Street was selling. Either way it will be seen that both domestic and foreign banks will have pledge nearly worthless assets to get this handout and that the tax payer is on the hook for the bill.


The next big story is the Audit the Fed legislation championed by Ron Paul who is perhaps the only honest man in Washington. Don't get me wrong I'm not an extreme libertarian but on many of these monetary issues Paul is the man!

This legislation is actually a rough situation for many politicians, if they come out against transparency the public with neuter them next election cycle. However, if the legislation passes the facts revealed will shake the nation. Thankfully most politicians are so stupid they don’t suspect what an audit will prove or how the public will react.

One recent "WTF" story were comments by China that they would allow state owned ventures to default and walk away from commodity based derivatives. Yes we all know that many of these derivatives are overly complex garbage bets masquerading as hedges but caveat emptor folks, I you’re too damn dumb to understand a contract you signed, too bad.

Whether these statements are truthful or just a warning shot it’s important to know that contracts and the rule of law in China are only as strong as the dictatorship wants them to be. Can the U.S., the worlds biggest debtor dare do anything against their biggest creditor should they default? Not bloody likely.

There is some good news from China for silver bugs as Official Chinese TV began flogging the ownership of silver bullion as a good investment that is cheaper and better valued than gold. With the size of China’s market investment demand is bound to expand and eat up a lot of physical demand, Yipee!




Overall the summer unfolded as it should with the U.S. dollar down, bullion up, banks failing and a growing recognition that the next wave of chaos caused by commercial properties, option ARMs and defaulting credit cards is about to break. The last part of the year should be colourful

What I did no my summer off,
(kinda like that grade 4 essay you did)

As peak oil and emergency preparations are also important issues to the Canadian silver bug, we spent our summer increasing our efforts at gardening, seed saving and canning, putting up tomato sauce, relish and jam so far with hopefully more to come.

While I've not been as successful as I'd have liked it is a start in the right direction in both lifestyle and expectation, as well we made progress regaining those skills lost to most of our generation. Should power or food distribution fail I suspect we could easily function for well over month on our food, both canned and commercially packaged. Once the root crops come in and I buy a winters worth of rice and wheat I think we could stretch it out to 3months. Storing adequate water however is a much bigger challenge, where the hell do you stash 1 gal/person/day?


Anyway my summer hiatus is over and I’ll be back again soon!

Morgan Stanley, selling bullion they don't have and getting away with it

aka

The crooks get fined, never admit guilt and nothing is done to force these villains make good on the damage their bogus bullion sales caused.

I originally caught wind of this case some time ago from the works of Ted Butler and I've blogged, blogged again and blogged more on this and other schemes by banks to sell non existent bullion and unbacked bullion certificates to unwary investors. These scum also got up to other mischief like charging people storage on bullion that was never purchased, cute huh! So after several years in civil court Morgan Stanley has made a deal to pay $4.4 million in fines and remediation but get off without admitting any crime. If you tried this kind of crap you'd be tried in criminal court and go to jail for life.

I'm not only quite disappointed that no guilt was attributed to Morgan Stanley in this case but also the fact that $4.4 million in payouts for 21 years of misleading thousands of investors is considered a reasonable settlement. That's a mere $209K for each of the years they wrongfully charged people for storage of bullion they never purchased, that's $209K for each year they thwarted the market and legitimate price discovery for Silver and Gold by not actually investing peoples money in the product they wanted to buy. This is a $30 Billion dollar company and this settlement is no deterrent but simply the cost of doing dirty business.

With 22,000 people in the class action against Morgan Stanley that's less than $10/year/victim

At bare minimum Morgan Stanley needs to refund all service charges and storage fees for the last 23 years, they need to do submit to an audit to prove they have now obtained the bullion needed to back all the products they sold and they should be required to move all bullion to a independent third party storage facility. Then throw $50 million in fines just to make a point that this behaviour is wrong.

During this court case Stanley admitted that not buying 100% of the bullion to back products was an industry norm. Seeing this statement governments and bank regulators should be issuing a memorandum to all banks that an audit of bullion accounts and certificates will be made mandatory in 6 months time and that they had better step into the market and cover their positions in that time frame or face fines and/or government oversight. This bullshit of selling people things they don't own has got to stop. People need to know that their purchases are real investments and not gimmicks to use their own money to bet against them in the futures market. Purchasing a commodity based investment should actually impact the supply and demand of that commodity and in return support its real price.

For Canadians don't think it's any better here. In the last year or so we've seen TD's unwillingness or inability to redeem silver Certificates and we have seen recent work showing that other Canadian Banks don't fully back bullion based financial instruments they sell, hell most don't even report their bullion holdings in their financials or answer simple questions from customers regarding these products. The MSM and Governments need to investigate this kind of corporate behaviour so I would ask you to complain to your elected officials, write letters of complaint to your financial institutions, letters to the editors of local and national papers, and ask business and crime reporters to investigate these scams.

I've been surprised a few times to find certificate investors among the people I interact with every day. Most of these folks do not consider themselves gold or silver bugs and because of that they don't see the information about manipulation and fraud most of us are saturated with. Go out on a limb and tell all those around you about this case and the likelihood that all other banks selling similar products are either marginally backed or not backed by bullion at all.

Questionable backing for silver certificates.

I'd like my readers, especially the Canadians who hold bullion certificates to read this most recent work by This is the Mad Scientist Speaking for his look at Scotiabank's silver assets(bullion) vs. their liabilities (certificates).


Remember a silver or gold certificate is just as artificial as a fiat note if you can't trust the issuers promise to fully back the certificate with bullion.