Russia Attacks the US Dollar, Buys 18.6 Tonnes of Gold in June

Russia continues to aggressively accumulate gold reserves. Its gold holdings increased again in June as the crisis in the Ukraine and relations with the West deteriorated.

The Russian central bank officially increased its gold holdings by 16.8 tonnes to 1,094.8 tonnes in June, the IMF’s International Financial Statistics report showed. In ounce terms, Russia increased its gold holdings by some 500,000 ounces, to 35.197 million ounces in June from 34.656 million ounces in May.

So far in 2014, Russia has now bought substantially more than their entire annual gold production of nearly 1,500,000 ounces.

Russia was not the only central bank to diversify foreign exchange reserves, primarily held in dollars, into gold. Allies of Russia also bought gold in June. The central banks of Kazakhstan, Kyrgyzstan and Tajikistan, all Russian economic and military allies all accumulated gold in June.

Currency wars are set to intensify and the buying by the former Soviet states is another manifestation of this.

- Source, Goldcore

Returning to a Stable Dollar

The return to a stable dollar may take some time, but it's critical for the global economy, says author and publisher Steve Forbes.

Video produced by Caleb O. Brown, Austin Bragg and Kevin Sennett.

I Owe My Soul—Why Negative Interest Rates Are Only the First Step

The US Economy Is Still in the High-Danger Zone

By Dennis Miller

I hate being the bearer of bad news.

I remember the one and only time in my life I agreed to umpire a Little League game behind the plate. My youngest son was on the mound, and his older brother came to bat. The count went to 3-2, and I realized I had a huge knot in my stomach.

I said to myself, “God, please let him swing and hit the ball!” And he did. I don’t even recall where it went; I was just thankful I didn’t have to make a call that would have meant bad news for one of them.

Calling it the way you see it may be a good way to live your life, but it isn’t always fun.

I have been harping on the Federal Reserve policy of artificially keeping down interest rates since it started over five years ago.

Nothing has changed; in fact, you could make the case that things have gotten worse. Although there are rumors that the Fed may end QE in September or October of this year, I am not holding my breath. Right now, they are still flooding the banking system with billions of dollars per month, and finally the baby boomers—10,000 of whom are turning 65 every day now, for the next 16 years—are starting to understand what we already know.

Low Interest Rates Are Killing Savers…

In a recent Bloomberg article, Bill Gross of PIMCO (the world’s biggest bond fund) calls the minimal returns that savers and income investors have seen from bank deposits and fixed-income securities a “financial repression.”

“I hate to be gloomy,” said 69-year-old billionaire Gross, “but, yes, for the next 10 years, the oldsters, and I’m in that camp, are going to be disappointed in terms of the policy rate.”

Former President of the Atlanta Fed William Ford chimed in, saying that current low US Treasury yields reduce conservative investors’ income by at least $280 billion annually.

“The costs of low interest rates are being ignored,” Ford said. “It is killing savers, elderly savers who are living on life savings that have been conservatively invested.”

Can it get any more depressing?

Yes: according to the Department of Labor, due to lack of yield from savings and investments, workers 65 and older are the only group of Americans who are increasingly employed or looking for jobs.

… and Keep the US Economy from Recovering

In a March 10 article in Gold-Eagle, author Ian Gordon joins the critical voices. “This is unprecedented,” he writes; “there has never been a time that the entire world has been subjected to such dishonest money that can be created at the whim of unelected bureaucrats acting on behalf of their private shareholders.”

And legendary investor Jeremy Grantham told the Sydney Morning Herald that the US Federal Reserve is killing the recovery of the world’s biggest economy:

“My view of the economy is not principle-based. Higher interest rates would have increased the wealth of savers. Instead, they have become collateral damage of Bernanke’s policies. […]

There is no evidence at all that quantitative easing has boosted capital spending. We have always come roaring back from recessions, even after the mismanaged Great Depression. This time we are not. It’s anecdotal evidence, but we have never had such a limited recovery.”

As you can tell, I could keep going and going.

If it weren’t so sad, I would have been tempted to laugh when I read an RT article titled “’Too big to fail’ status gives US banks a ‘free pass’—Fed Study.”

According to the article (emphasis in original): “The new research shows ‘it is improper to ask the taxpayer to underwrite the non-commercial banking operations of a complex bank holding company,’ Dallas Fed President Richard Fisher told Reuters in an interview.”

Boy, are these folks slow on the uptake. I could have told them that even before the 2008 crash, and without spending millions of dollars on a high-falutin’ study.

The top 10 banks in America, says the article, now have combined assets of about $9.72 trillion (that’s compared to a total GDP of $15 trillion in 2012).

“The banks are still gambling with FDIC-insured money,” says Ted Kaufman, a former US Senator from Delaware. “The JPMorgan Chase ‘London Whale’ fiasco was just the latest proof that there has been no change in the casino speculation of Wall Street banks.”

“No one has gone to jail,” Kaufman predicted. “And no one will. There are many examples of criminal behavior during the meltdown, but not one megabank executive has been jailed. Without that deterrent, white-collar crime is not just profitable but inevitable.”

Enough Already!

We all get the point—the Federal Reserve is bailing out the banking system. And to do so, it’s keeping interest rates suppressed, forcing American savers and income investors to put more money at risk than we should have to.

And that’s not going to change with the new Fed Chair Janet Yellen, who flat-out tells us that “the Fed still thinks rates should remain low to stimulate borrowing, spending, and economic growth. I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely held by my fellow policymakers at the Fed.”

Of course there is no evidence that any of the policies have actually worked… so we’re on our own to maintain and/or enhance our standard of living.

High Danger of Wildfires

I am generally considered a pretty positive guy, but even I have been wondering if this artificial propping up of the economy and stock markets will ever stop.

Last month, my wife Jo and I were staying in Arizona. A couple of days after a heavy rainstorm, we drove through Tonto National Forest. There was a Smokey the Bear cutout next to a meter with color-coded markings outlining the danger level of a forest fire, and it was at light yellow.

I’ve never seen it light yellow before, very close to the green that signals “all clear.” Late last summer, when we last visited, it was way over in the red with a high-danger signal.

Unfortunately our economy is still in the high-danger zone. I hope to live long enough to tell everyone that I see the threat moved back to Smokey pointing at light yellow. I just don’t see it, despite what we read in the mainstream press. As I said, calling them the way I see them is not always fun—but there is a silver lining…

Here’s One Big Positive for All of Us

Good friend Chuck Butler of EverBank writes a terrific report each day called the Daily Pfennig. In a recent issue he wrote:

“I do believe that quite a few people in their 50s and 60s are about to find out that the money they’ve set aside for retirement is too meager to support the standard of living they’d hoped for, and then the forecast for a retirement system crisis will become reality, and then it will be too late!”

Chuck would be the first to agree that none of us has to be in that group—that is, the people who wear their rose-colored glasses until it is too late to change anything. His readers and our subscribers are some of the best-informed people on the planet. We simply refuse to fall in the category of helpless citizens that are termed “collateral damage.”

Intelligent investors who can see the truth are inherently problem solvers. Tell us the rules, and we will figure out a way to survive. We’ll do much better than the masses who may not be as well informed or, worse yet, may be listening to those who don’t have their best interests at heart.

Personally, I have never felt as confident as I do today, even though the economy is in terrible shape. We have a plan in place—a solid diversification strategy coupled with position limits and stop losses—and I’m proud of our track record of great yield as well as our safety measures to limit risk.

There’s one strategy in particular that I recommend for every conservative investor: I call it my “Paychecks” strategy because it’s like getting a steady paycheck—without having to work for it. If that sounds too good to be true, it’s not; the secret is a special way to invest in dividend-paying stocks. It’s all laid out in my special report Money Every Month, which also includes my favorite stocks that you can use to implement this simple strategy.  Click here to read Money Every Month now.

The article The US Economy Is Still in the High-Danger Zone was originally published at millersmoney.com.

The Fed’s Stealth Tightening

By Bud Conrad, Chief Economist

As expected, the Fed tapered its purchases of mortgage-backed securities on Wednesday to $15 billion per month and its purchases of longer-term Treasury securities to $20 billion per month.

That means total monthly purchases, which were $85 billion last year, are now down to $35 billion. That’s a significant cut.

The Fed also cut the range of its full-year 2014 real GDP growth forecast, from 2.8% – 3.0% down to 2.1% – 2.3%. That was no surprise, considering that GDP in Q1 was negative 1%, and it may have been a bit of a warning.

Those who are familiar with my work know my no-confidence stance on Fed prognostication. But just to make my opinion clear: I think the Fed is in the business of obscuring the truth. Official inflation numbers vastly understate actual price rises:

• Housing in California is back to its pre-crisis peak;

• Stocks are at record levels;

• Food prices jumped 0.7% in May alone; and

• Anyone who drives knows that a tank of gas is far more expensive than it was a year ago.

The Fed’s claim that inflation is contained and that there is no need to raise interest rates is just a show put on for people who believe the government. If we applied a more accurate inflation rate to GDP calculations, real GDP would not be growing at all.

My point is that the Fed and the media tell us things are better than they actually are. Meanwhile, the Fed is taking secret actions that reveal where Yellen and friends really think the economy might be headed.

The Fed’s New Tool: Reverse Repo

Traders have used Repurchase Agreements ("repos") for decades. A repo is essentially a collateralized loan. A borrower sells government securities to a lender and buys them back later at an agreed-upon date and slightly higher price. The lender takes on very little risk to earn a small amount of compensation while it holds the government securities as collateral.

Repos can last for any amount of time, but they are often ultra-short-term. Overnight repos are the most common.

The Fed has announced that it’s using “reverse repos” as a new tool to manage monetary policy. Don’t let “reverse” confuse you: Reverse repos are just a way the Fed soaks up cash from financial institutions. The Fed is the “borrower,” swapping its Treasuries for banks’ cash. You might call it the opposite of quantitative easing: reverse repos drain money from the financial system.

The Fed can also use repos to add money to the system, as it did in the early stages of the 2008 Credit Crisis:

By netting repos with reverse repos, we can see their combined effect on monetary policy over time:

As you can see, the Fed is quietly using reverse repos to drain the money supply. Remember, this is on top of the taper. Net, the Fed is being less accommodative than most are aware of.

How Repos Fit into the Fed’s Balance Sheet

The following chart illustrates how the Fed’s liabilities (sources of funding) changed dramatically during the financial crisis.

The Fed funded and continues to fund its quantitative easing programs with bank deposits. Here’s the rundown on how that works:

1. The Fed creates cash from thin air.

2. The Fed buys Treasuries and mortgage-backed securities (MBS) from banks with that freshly minted cash.

The Fed pays banks 0.25% interest as an incentive to keep the new cash on deposit at the Fed.

That huge $2.8 trillion in deposits is a risk source, because the financial institutions could withdraw those funds at any time, if they think they can generate better returns than the 0.25% interest that the Fed pays.

Reverse repos are also a source of funding for the Fed: they provide cash for the Fed to continue purchasing Treasuries and mortgage-backed securities.

Though reverse repos are only a small portion of the Fed’s balance sheet, they are important. As the growth of the yellow “deposits” has trailed off, reverse repos have picked up much of the slack.

In effect, the Fed has sopped up $200 billion in the last nine months in “stealth tightening.” I use the word "stealth," because most investors, and even most Fed watchers, aren’t aware of the effects of reverse repos.

You’re probably wondering, "What’s the Fed’s ultimate plan here?"

I think that the Fed is using reverse repos to build up a hidden source of funding so that it can unwind its tightening quietly, if need be. The Fed now has $200 billion in “ammunition” that it can deploy without much (or any) fanfare, because nobody is following this closely. “Reverse Repos” isn’t the headline grabber that “Quantitative Easing” is.

As a side note, notice that the Fed’s capital is so small that you can barely see it. If the Fed were a bank subject to market forces, the slightest negative surprise would render it insolvent. But of course, it has a monopoly over the printing press, so it needn’t worry about such things.

One last reason the Fed might be secretly building a rainy-day fund: As my analysis in the newest issue of The Casey Report demonstrates, foreigners have recently stopped lending money to the US. That’s a huge problem for a country that had a $111.2 billion trade deficit in the first quarter alone, and will spend half a trillion more dollars than it takes in during 2014.

As I said earlier, the Fed has been very quiet about this repo program, so we can only surmise what its true motivations are. But as the US government’s lender of last resort, the Fed may be raising this source of cash so it can lend more money to the US government as foreign lending continues to dry up.

In conclusion, the credit crisis of 2008 changed our financial system in many ways. Whether this latest repo experiment is just another Band-Aid on the money balloon or something more, it’s well worth keeping an eye on.

You can find my data-driven analysis in every single edition of The Casey Report. Start your 90-day risk-free trial now to read the current issue plus two more, access all of the current stock picks, and peruse the archives before deciding if The Casey Report is for you. If it’s not, no problem—just call or email for a full and prompt refund. Click here to start your no-risk trial subscription to The Casey Report straightaway.]

The article The Fed’s Stealth Tightening was originally published at caseyresearch.com.

Paul Craig Roberts - The Entire U.S. Gold Hoard Is Now Gone

Eric King: “Dr. Roberts, I know you’ve seen the report on Bloomberg about Germany (all the sudden) supposedly being happy with storing their gold at the New York Fed. It seemed to be a propaganda piece. What was your take when you saw that?”

Dr. Roberts: “Clearly what that means is that the United States doesn’t have the gold and cannot deliver it -- and has forced Germany to come to terms with that, and to stop asking for it since it can’t be delivered....

“And so they (the U.S.) have told their puppet state (Germany) to shut up and come up with a different statement that they are content to leave it (their gold) with the Fed. Perhaps they had to bribe them or give them other advantage. But, essentially, they have stopped any German agitation for the return of their gold because it can’t be returned.”

Eric King: “What are the implications of that for other countries that have gold stored at the Fed? Because it’s outrageous they are not returning Germany’s gold.”

Dr. Roberts: “The implications are nobody will get it back. People in the gold market have (long) suspected that the Fed used up all of the U.S. gold trying to suppress the price of gold over the years. And then after they ran out of U.S. gold, they started using all the gold left with the Federal Reserve on trust.

So they (the Fed) used the German gold. I suspect that is true because what we have seen in recent years, especially since gold peaked at (roughly) $1,900 an ounce in 2011, we have seen more and more reliance on dumping huge amounts of naked gold shorts on Comex during hours in which there is no trading, in order to knock the gold price down and suppress it.

So they protect the dollar from quantitative easing by shorting the paper gold market, the futures market. If they still had stocks of gold that they could lease to bullion dealers to sell on the market, they would still be using that technique.

So I assume that the gold stocks ran out some time in 2011 because since that time they are mainly controlling the gold price with naked shorts during market periods when trading is light or non-existent. So I think it’s a safe conclusion that the supply of gold bullion available to U.S. authorities is almost non-existent.”

- Source, Paul Craig Roberts in a recent King World News interview.

A Guy Leans on a Lamppost… and You Make a Buck

COMEX – Why it’s Corrupt

It is one thing to label (libel?) the world’s most important precious metals exchange as the most corrupt; but perhaps quite another to prove it in terms beyond reasonable doubt. First, let me be clear in what I am asserting – the Commodities Exchange Inc. (COMEX), owned and operated by the CME Group, has come to control and manipulate the price of gold and silver, as well as copper, for the sole benefit of certain exchange insiders, most prominently JPMorgan.

Through corrupt trade practices, the COMEX has stolen and captured the pricing mechanism for gold, silver and copper away from the influence of actual supply and demand fundamentals. Replacing the law of supply and demand as the price determinant, the COMEX has substituted a private club run by a few large traders who, in turn, dictate prices to metal producers, consumers and investors. The federal commodities regulator, the CFTC, is complicit in the price capturing, but the prime culprit is the CME Group. Ironically, it is data from the CME and published by the CFTC that prove price manipulation on the COMEX.

Because the price control of the COMEX is continuous, if silver prices are manipulated, as I allege, the manipulation is in effect whether prices are falling or rising. Gold prices surged 4% last Thursday (June 19) and silver by 5% in the single largest one-day price rally in months. Government data, in the form of past and future Commitments of Traders Reports (COT) demonstrate conclusively not only why prices exploded on that day, but also why gold and silver prices were lower into the price explosion.

It is important to understand that price manipulation is the most serious market crime possible. In fact, the US economy and body of trade law depend upon the price of any good or service being established in free market competition without artificial constraint. That’s the definition of a free market. The whole concept of US antitrust and commodity law is to prevent an uncompetitive market share being controlled by a few market entities. If the price of any commodity is artificially set by anything other than free market competition in its production and consumption, it sends a false message to producers and consumers and distorts both current activities as well as future plans.

Particularly in silver, the COMEX violates just about every concept of a free market; from unnatural market share concentration to creating an artificial pricing scheme which overrides any impact from the actual production and consumption of the metal. Those are strong words, but easily substantiated.

The first thing to understand is how and why the CME replaced real production and consumption as the price discovery mechanism with electronic trading for purely speculative purposes. The “why” is for the money and once you see that, the “how” becomes obvious.

The CME owns and operates the COMEX and other exchanges as a publicly-traded for-profit corporation. As such, its main motivation and purpose is to generate profits for shareholders. While there is nothing wrong with that in the abstract, a commodity exchange is a unique financial institution in that such exchanges, at least in the US, must be authorized by Congress and regulated by the CFTC. In addition, there is a strong front line self-regulatory responsibility bestowed on US commodity exchanges, like the COMEX, to make sure all trading is on the up and up.

These are not typical responsibilities for the vast majority of publicly-traded corporations and have come to create deep conflicts of interest between commodity law and the CME’S profitability. Please remember that commodity exchanges have existed and have been regulated for almost a century in the US, while they have existed as publicly-traded, for profit corporations for only around a decade. It’s taken that long to see there is something wrong with that set up.

The CME depends on increased trading volume for increased corporate profits. The only way to increase trading volume is to introduce new products and/or increase the trading volume of existing commodities. Introducing new products is easier said than done, as the most active markets have been around for many years. That leaves the only viable avenue for increased corporate profits as increasing trading volume on existing markets. While the CME has been very successful at increasing trading volume on existing markets, that success has created a problem for everyone in the world outside a few insiders at the COMEX.

The problem is that the CME has relied on High Frequency Trading (HFT) and other speculative trading schemes to pump up trading volume to drive corporate profits. This is a problem because it has forced the COMEX to cease accommodating real producers, consumers and investors in silver, gold and copper and instead to cater to those trading with HFT computers and to those speculating in large quantities of electronic contracts.

Real commodity producers and users have little use for the rapid short term speculative trading that has come to drive profits for the CME. Why would a silver mining company be involved in electronic trading measured in small fractions of a second? This can be seen in how little actual trading is done in COMEX silver by actual miners or silver users; I would estimate less than 5% of all COMEX silver futures trading is transacted by real producers and consumers of silver. More than 95% of COMEX silver trading is purely speculative in nature, with much of it nothing more than day trading by HFT algorithms.

This is the consequence of the CME seeking to pump up trading volume at all costs. By catering to speculative traders seeking rapid turnover over the needs of producers, consumers and investors seeking legitimate hedging opportunities, the COMEX has become little more than a private gambling parlor divorced from the price influence of actual silver supply and demand. It also explains how the price of silver can be so estranged from real world fundamentals – the COMEX speculators setting the price have no interest in actual supply and demand, just the next price tick. This can be seen in the COT data published weekly by the CFTC.

The “hot” money category of the COT reports is the managed money category of the disaggregated report. This is the category of registered commodity trading advisors (CTA’s) that mainly trade on momentum and price signals and is most responsible for price movement, both down and up. Most (but not all) of the traders in this category are what I call the technical funds which buy and sell when prices penetrate moving averages. Most of the buying on Thursday and Friday was by technical funds which bought to cover short positions and/or establish new long positions in gold and silver as several important moving averages were penetrated. In essence, this was the sole explanation for the price rally in gold and silver.

There has been a documentable pattern of technical funds selling 30,000 net silver contracts (or more) on big price declines and purchasing that number of contracts on price advances. All technical fund buying and selling is based upon price signals. This equates to 150 million ounces of silver sold and bought over days and weeks with no connection whatsoever to what is transpiring in the real world of silver production and consumption. Similar amounts of gold and copper COMEX futures dictate prices in those markets.

I doubt that any serious student or analyst of the COT reports would argue with anything I just wrote about the technical funds and the effect their buying had on price the past couple of days and weeks. In fact, a good number (including me) wrote extensively about how the record number of technical fund shorts in silver virtually guaranteed a sharp short covering rally at some point. Some may argue with my contention that the technical funds are largely snookered into and out from positions by the commercials who control the COMEX price mechanism, but that is not material for this discussion.

The simple fact is that when the technical funds buy, they all buy in unison and that is usually the sole reason for prices to rise. When the technical funds sell, they sell in unison causing prices to fall - always. It’s not hard to see why the technical funds trade in lockstep with other technical funds - they are all using the same price signals. And it’s not hard to see why the commercials always take the other side of the technical funds collective buying or selling – the commercials are the only entities capable of being the technical funds’ counterparties.

I admit that if the commercials didn’t trade aggressively against the technical funds, prices would soar and fall much more dramatically than any price moves witnessed to date. Some, including the commercials themselves and the regulators at the CFTC and CME view the commercials counterparty transactions with the technical funds as legitimate market making designed to smooth out price movements. While that may be somewhat true, a much bigger issue emerges.

The technical funds are speculators through and through. No one would argue otherwise. In their role as counterparties, the commercials are also speculators; positioning against the technical funds for nearly certain profit. The problem, in a nutshell, is that prices are being determined in a speculator versus speculator contest. By the very definition of the traders involved, no real producers or consumers or investors in the actual commodity are represented in the speculator vs. speculator contest in COMEX futures trading. Please think about that for a moment.

The CME Group spends millions and millions of dollars on lobbying and advertisements proclaiming their exchanges exist to make it possible for actual commodity producers and consumers to hedge their price risks. But instead of encouraging real silver producers and consumers to hedge price risk, the CME has instead devised and encouraged a trading system on the COMEX that facilitates a massive speculator vs. speculator private betting pool. Talk about false advertising. Worse, real silver producers are unfairly punished by the artificially low price that the private betting game has created. I am sure that real hedging makes up way less than 5% of the total trading volume and open interest in COMEX silver.

The root cause behind the unlawful conversion of the COMEX into a speculative day trading scheme from a market designed by Congress to facilitate legitimate hedging is an old issue, but with a slightly new twist – the absence of position limits. And this explains why the CME fights legitimate speculative position limits at every turn.

Most are familiar with previous initiatives concerning position limits; specifically, to establish limits on how many short contracts big commercials, particularly JPMorgan, could hold in COMEX silver. While the CME Group and JPMorgan fought to prevent or delay position limits in silver, at least JPMorgan does seem to have reduced its concentrated short position in COMEX silver recently (with all eyes on Friday’s report). But I’m talking about position limits now in a new way.

There are about 30 or 40 technical fund traders in COMEX silver. When fully positioned each holds, on average, roughly 1000 silver futures contracts, either long or short. As such, no one technical fund holds anywhere near the proposed (still not in force) speculative position limit of around 5000 contracts, or even, for that matter, more than the 1500 contract position limit that I have long advanced. So why the heck am I raising the issue of position limits when the average technical fund holding doesn’t exceed 1000 silver contracts? Let me explain why.

If a single speculative trader went long or short 30,000 contracts of COMEX silver futures in a short period of time (days and weeks), causing the price of silver to rise or fall dollars per ounce, no one would argue that wouldn’t manipulate the price or violate the intent of position limits. 150 million ounces of silver suddenly bought or sold on the COMEX would, most certainly, jolt the price up or down. Even the CME and CFTC would react strongly if a single speculator suddenly bought or sold 30,000 COMEX silver contracts.

But what’s the difference between a single speculator suddenly buying or selling 30,000 COMEX silver contracts and 30 separate speculators suddenly buying or selling 1000 contracts each if they are all operating as a single speculator? I’m not suggesting that the 30 separate technical funds all buying or selling at the same time are colluding among themselves (as the commercials are, indeed, colluding), but the net effect on price is the same whether they are colluding or not. The sudden purchase or sale of 30,000 contracts of COMEX silver has the same impact on price irrespective if transacted by one entity or 30 entities simultaneously.

The intent of speculative position limits is to limit the influence of purely speculative trading on price. Since the technical funds are operating on basically the same price signals to buy and sell, they are, in effect, operating as one entity and as such must be subjected to position limits on a collective and not only on an individual basis. The sick thing is that the CME (and the CFTC) know this collective technical fund trading pattern is manipulating the price of silver up and (mostly) down, but pretend not to notice for two very obvious reasons. Any restriction of technical fund trading would reduce trading revenue to the CME and, moreover, deprive COMEX commercial insiders of the rich pickings the technical funds provide to their commercial counterparties.

That’s why the CME is corrupt and how I can say that openly without rebuttal or retaliation. But I’m not a prosecutor or enforcement official; I am an analyst who can only point out how and why the price of silver (and gold and copper) is manipulated on the COMEX. The solution is simple – treat technical funds who operate as one entity as one entity for the purpose of speculative position limits.

Congress never intended a regulated commodity exchange system to be centered on growing profits to the exchange operator (the CME) to the detriment of real commodity producers, consumers and investors. If you agree, please write to your elected officials, particularly those on agricultural and finance committees, and insist that technical funds be subject to speculative position limits on a collective basis, since they trade on that basis. I’m also updating the email addresses for the appropriate regulatory officials, since there are some new faces. To be sure, I am not counting on the CME and CFTC to do the right thing as far as enforcing position limits in a fair manner; I’m just trying to shine a light on corrupt practices.

- Source, Ted Butler

Outside the Box: The Four Horsemen of the Geopolitical Apocalypse

The Only PGM Stock You Should Buy

By Jeff Clark, Senior Precious Metals Analyst

It’s quite the dilemma.

One of the major reasons my colleagues and I are so bullish on platinum group metals (PGM)—palladium, in particular—is because of the intractable problems with supply. But most of the producers are backed into corners, with few options for improving their outlook. There’s simply no way for these metals to avoid a long-term production deficit due to the deep-seated problems with the companies that produce them.

So, how to invest?

Since we’re talking about profiting from a metals bull market, we could just buy bullion—and we have indeed recommended doing so to our readers. But to really maximize your leverage to the upside (and avoid more risky futures and options), a stock in a company that produces the metal is normally the way to go. Unfortunately, as above, the pickings are slim.

For us to invest in a PGM producer, the company would have to be:

• Outside of South Africa and Russia. The problems with miners in both countries are numerous and difficult.

• Making money. Many producers are not profitable at current prices because production costs are so high. And they won’t come down just because the strikes ended—they’ll go up, due to higher wages.

• Have a strong growth profile. We want a company that can capitalize on burgeoning demand, which would add further leverage to our investment.

• Have strong management (of course!). The last thing we want is a team with no experience navigating a volatile market such as this.

Does such a stock exist?

It’s a tall order, but the answer is yes. The company we recommend in this area meets all the criteria above—and is the safest speculation in this space. We consider it so safe, in fact, that we just “graduated” it from the International Speculator to BIG GOLD.

How’s This for Leverage?

This profitable mid-tier producer is perfectly positioned: it’s not so small that we’re purely speculating on some uncertain game-changing event, and yet it’s small enough to generate much larger share price gains than would be possible for one of the major mining companies. On the other hand, it’s big enough to catch the attention of mainstream investors.

Here are seven reasons why we’re excited about this company and the leverage we think we’ll get by owning shares…

#1: Large, High-Grade Assets

The company has two distinct but closely related mine sites. These alone will support the company’s growth for many years. However, only nine miles of an estimated 28 miles of known mineralization has been developed between them—essentially one-third of one giant mineralized structure. Management thinks it has an additional 102 million tonnes of undeveloped resources waiting to be dug up.

And get this: the average grade of their proven and probable reserves is 0.45 ounces per tonne, the world’s highest-grade PGM deposit. Of these, 78% is palladium, a very attractive figure since we’re even more bullish on it than platinum.

At the right metals prices, this company could double or triple production and still maintain a very long mine life.

#2: Growing Production and Low Costs

The company grew 2013 production by 10,000 ounces, but has yet to use all its milling capacity. It currently uses about 3,600 tonnes per day (tpd) of its 6,000 tpd total capacity. The company is working to increase ore production this year, which is good timing for us.

With a much cleaner balance sheet and a forecast of $800-$850 per ounce for all-in sustaining costs (AISC) in 2014, the company looks poised to make money in the current price environment—and a lot of money in the supply squeeze we anticipate.

#3: Recycling Business

In addition to mining, this company recycles depleted catalyst materials to recover palladium, platinum, and rhodium at its smelter and base metal refinery. It’s been doing this since 1997, and business is booming. Pre-tax earnings last year rose a whopping 233% over 2012. And management says it will expand this end of their business over the next few years.

#4: Strong Financial Performance

This company reported over a billion dollars of revenue last year, up nearly 30% from 2012. It finished the year with a very strong working capital position of almost a half billion dollars.

#5: Unique North American Operations

The company is one of only a few PGM producers in North America. Nearly all other PGM mines operate in South Africa (Impala, Amplats, Lonmin, etc.) or Russia (Norilsk). Therefore, this company is more stable than most that mine in other jurisdictions.

#6: Upgraded Management

A prior management team made a poor investment in Argentina a few years back, which led to major changes in the board of directors and top management last year. The new president and CEO is a 21-year industry veteran and has experience in both M&A and mine optimization. He’s already corrected past mistakes, and we’re happy with the direction he’s taken the company. The technical people on the ground seem competent and are getting admirable results.

And finally…

#7: We’ve Been There!

Our Chief Metals Investment Strategist Louis James, who conducted a due-diligence trip to the company’s operations last year, says:

I liked the story when I visited and considered it to be the company to buy in a safe mining jurisdiction. But I didn’t want to bet on the team in place at the time. Flash forward and now it’s under new management, which is very focused on cutting costs and expanding the core business. The company’s results for 2013 were quite impressive, and I expect them to get better going forward.

I’m convinced this company is uniquely positioned to benefit from potential supply shortages. Coupled with a likely rise in demand from the global auto industry in the years ahead, this stock is a very attractive play.

Here’s a picture from his visit.

Pay dirt: this is what the company’s palladium-platinum mineralization looks like before blasting. You can see the closely spaced holes that will be blasted a fraction of a second before the surrounding ones—in successive waves—so the ore is blasted inward. This high-grade resource in a safe and stable jurisdiction is the heart of our speculation.

The Only Stock to Buy, in a Market Backed into a Corner

Johnson Matthey, the world’s leading authority on PGMs, estimates the platinum market will register a deficit of at least 1.2 million ounces this year. This would be the largest shortfall since it first compiled data in 1975.

While it will take an enormous amount of time and expense to recover from the strikes in South Africa, that’s only the first layer of problems for the industry:

• According to consultancy GFMS, 300,000 ounces of platinum and 165,000 ounces of palladium could be lost after the strikes end, as it will take time and money to ramp up to full capacity—if that’s even possible since some mines have been damaged. The Implats CEO said it will take his company at least three months to return to full production, and they’ve already put the development of three new replacement shafts in the Rustenburg area on hold. Anglo American announced just last week that it plans to sell its platinum operations.

• Holdings of physically backed palladium ETFs continue to hit record highs. In less than two months, a half million ounces were added to ETFs. Fund holdings will likely continue to climb and push the palladium market further into deficit.

• The Russian government has been reportedly buying palladium from local producers, since it appears its stockpiles are near exhaustion. Exports ticked higher last month, but that was likely in anticipation of potential sanctions.

• Some recyclers announced they are holding back on sales, as they believe prices will move higher.

• Platinum demand in India is expected to grow 35% this year.

• Reports have surfaced that tout replacements to platinum and/or palladium. However, these are mostly research projects and are at least two to three years away from commercial viability (some will never make it).

• Auto sales in the US, China, and Europe, the three biggest regions by consumption, were up 12% through May over 2013.

• Existing stockpiles of these metals have dwindled. Based on prior estimates from Citigroup, only nine weeks of palladium and 22 weeks of platinum supplies remain—and half of those are in Russia. Standard Bank projects that stockpiled material from South African producers will run out in a month or less.

The key point is that platinum and palladium supply is in a structural deficit. Prices will pull back now that the strikes have ended—and that is your opportunity. The bull market in these metals is really just getting underway.

And we have the primo pick in the space. The shares of this stock would have to climb 50% just to match its 2011 highs—and that’s without the platinum/palladium supply crunch we’re speculating on.

As you’ve surmised by now, I can’t give away the name of this stock in fairness to paid subscribers. But you can get it by giving BIG GOLD a risk-free try. You’ll receive our full analysis and specific buy guidance, along with an exclusive discount on a popular gold coin in the June issue. And, if you want the absolute safest way to invest in PGMs, check out the options recommended in the May issue.

If you’re not 100% satisfied with the newsletter, simply cancel during the 3-month trial period for a full refund—no questions asked. Whatever you do, though, don’t miss out on the best stock pick in the PGM bull market. Click here to learn more about BIG GOLD or click here to go straight to the order form.

The article The Only PGM Stock You Should Buy was originally published at caseyresearch.com.

A Guy Leans on a Lamppost… and You Make a Buck

By Dennis Miller

To paraphrase Scottish novelist Andrew Lang, some people use statistics like a drunk uses lampposts—for support rather than illumination. Numbers can be twisted and abused to support false claims, and even correct data are sometimes misinterpreted.

For example, you may often see claims like “an expert opinion poll showed that inflation next year will be 2.65%.” Looks legitimate, right? We have experts and a precise number; what else do we need? Well, there are at least three potential biases at work in this short statement:

• Who are the experts? Are they economists and/or statisticians with robust methods and a good track record, or are they just the ones who had the time to reply to this survey? There is a potential selection bias here.
• How large was the sample? There is a rule of thumb in statistics that for an average to even start having any weight at least 30 experts (assuming their track records are solid) should have replied. If only 5 or 10 did the average tells us nothing.
• And what’s with the two digits after the decimal point? It sure looks precise, better than, say a range of 2-4%. However, such precision is often an illusion, or what’s called “over-precision bias.” Imagine a recipe that tells you to take two tablespoons of flour, half a cup of sugar and other things and then says the pie you’re baking will have 512 kcal. I’d bet that pie would never have exactly 512 kcal even if you follow the instructions to the tee. Same with inflation predictions: when working with complex systems such as the economy adding extra digits after the decimal point is a cheap shortcut to achieving the appearance of precision. In reality a (rough) ballpark figure is the best we can get.

With that in mind I want to clear the fog around two critical statistical measures, beta and correlation, and explain how they can help you invest smarter. There are many other statistical measures out there, but these two are critical for a well-diversified retirement portfolio.

Correlation-Based Diversification: When “Weak” Offers Better Protection

Let’s start with correlation.

Correlation tells us how closely related two datasets are. The correlation coefficient ranges from -1 to +1. A correlation coefficient of -1 means the two measures are perfectly negatively correlated. If one goes up, the other always goes down. Plus, they do so simultaneously. If the correlation coefficient is +1, they move together in the same direction 100% of the time.

The three most important points about correlation are:

• Correlation only shows how two variables move in relation to one another over time;
• Correlation changes over time; and
• Correlation tells us nothing about cause and effect.

The old adage “correlation doesn’t imply causation” is popular because it’s true. Even if the correlation between two sets of observations is strong, one still might not cause the other. Other statistical measures try to estimate causation, but correlation is not one of them. It only tells us that when “A” happens, “B” is likely to happen too.

Here’s a scholarly example.

Source: Dilbert

Correlation is important for diversification. The weaker the correlation between two assets in our portfolio, the better protected we are from negative movements in any one of them.

Bear in mind that correlation changes over time. The following chart shows the correlation of monthly returns between gold and the S&P 500. Each point on the line shows the correlation over the previous three years.

For example, the first number in the chart, -0.29, tells us that the correlation of monthly returns during the period of March 1975–March 1978 is -0.29. This tells us that for the preceding three years the relationship between gold and the S&P 500 was negative and quite weak. Thus, a portfolio of gold and the S&P 500 was well diversified before and at that date.

But as you see, this correlation fluctuated. It peaked at about 0.53 in 1983 and dropped to -0.43 in 1990.

The 1978 -0.30 correlation of a portfolio of gold and the S&P would not last. Gold’s returns followed the S&P much more closely in 1982, 1983, and 2006-2007. These relationships are not set in stone.

For retirement investors, the take-home wisdom about correlation is:

• Again, correlation changes over time. When you invest, try to pick assets with low (preferably negative) correlation to what you already hold;
• When you purchase an asset, consider how long you plan to hold it and how correlation may change during that time; and
• Most importantly, when the correlation does change, rebalance your portfolio to make sure it remains properly diversified.

For the Money Forever portfolio—a pioneer retirement portfolio built to safeguard your nest egg against its threat de jour, no matter what that is—we are using correlation to look for assets that are not strongly related to the US market right now. For example, the two latest additions to the Money Forever portfolio are: an international fund with an underlying index that includes companies located outside the United States whose income is denominated in foreign currencies; and, a high-yield dividend-paying energy play that is fantastic contrarian opportunity and a true global citizen—born in Norway, based in Bermuda and managed from London.  

We are concerned about inflation, and holding these types of asset is one way to protect ourselves. For the international fund, we expect its value to rise if the value of the US dollar declines, and a correlation lower than that of another dividend-oriented fund we hold should protect us against a US market downturn even further.

Plus, the energy play I mentioned has income in a host of foreign currencies, providing an additional shield against the decline in the US dollar—and a 10% yield that’s well ahead in inflation to boot.

We also hold a certain household name whose products you likely have in your home right now. However, 70% of its business comes from outside North America. While it’s part of the S&P 500, its operating income denominated in foreign currencies should provide some inflation protection too.

“Is this a good hedge against inflation?” is part of the Five-Point Balancing Test we use to analyze investments. In effect, selecting holdings that should perform well when the US dollar loses value and that tend to move in opposite directions from the US market helps balance our portfolio.

Beta Measures Systematic Risk, Not Volatility

Now, let’s turn to beta. Chances are your online broker shows a beta number on the summary page of any stock you look at. What does it mean?

Beta measures an investment’s risk in relation to the market, or its “systematic” risk. Note that correlation measures the relationship between any two assets, but with beta one of them always represents “the market” or a benchmark. While correlation between the asset and the market shows us if they move in the same direction, beta also shows the magnitude of the relationship.

Historically, if a stock rose 2% when the market was up 1%, the correlation would be 1. They moved in the same direction all of the time, so the relationship is obvious.

Beta adds another dimension. If a stock gains 2% while the market gains only 1%, the beta will be 2. It not only shows the relationship (positive) but also its magnitude (x2). But there is a caveat.

A very common misconception about beta is that it measures volatility. This is inaccurate. Let me share a simplified beta formula to quickly illustrate this point.

The formula suggests that an asset with low correlation to the market and high volatility has the same beta as one with high correlation and low volatility. The bottom line is that high beta alone does not tell us how risky an asset is.

The key takeaways are:

• Beta is not an all-encompassing measure of a stock’s risk.
• Beta depends on what you consider “the market.” Usually broad market indices like the S&P 500 are used to measure asset betas, but they are not the only option. If another benchmark is used, the beta of a particular investment will change.
• Like correlation, beta changes over time.

Unlike the drunk who uses the proverbial lamppost for support, we use statistics to test our premises. They help guide our thinking, but we don’t let them dominate it. Used correctly, they enrich our understanding and guide us to better investment decisions.

You can access our portfolio online right now and find out just what those decisions are by giving our monthly newsletter, Miller’s Money Forever, a risk-free try. Sign up today, and if our brand of “high-yield meets ultra-safe retirement investing” isn’t for you, just call or drop us a note and we’ll give you a 100% refund of every penny you paid, no questions asked.

Truth be told, the only way we could make it any easier is by sharing our entire portfolio right here, but we value our relationship with our paid subscribers too much to do that. So, sign up today and start counting yourself among them.

The article A Guy Leans on a Lamppost… and You Make a Buck was originally published at millersmoney.com.