PM Daily Market Commentary - 5/19/2015

davefairtex
By davefairtex on Wed, May 20, 2015 - 3:18am

Gold was hit hard, falling -17.80 to 1207.50 on heavy volume; silver dropped as well losing -0.61 to 17.10 also on heavy volume.  Gold sold off twice, once at 08:30 EST after a surprisingly positive Housing Starts report, and once more at 10:20 EST.  Silver resisted the drop at 08:30, but fell hard at 10:20.

On the day, gold was hammered back below the 200 MA, finding support at the 9 EMA.  Gold also marked a swing high.

Silver's chart looks a bit better, with silver finding support at its 200 MA.  Remaining above the 200 MA is a big deal, at least technically.  Thats why I say "silver's chart looks better" even though on a percentage basis today it did worse (down -3.44% vs -1.45%).  The gold/silver ratio rose +1.43 to 70.61.

Mining shares were hammered hard, with GDX down -3.61% on moderately heavy volume, while GDXJ fell -3.22% on moderate volume.  Once again, juniors outperform the seniors.  While its never fun to have your miners sell off, when PM is in a horrid downtrend you will see junior miners routinely underperform the seniors.  The fact that GDXJ didn't underperform today is a relatively bullish indication to me, in spite of the bad day overall for PM.

The buck had a very strong day, rising +1.09 [+1.16%] to close at 95.36.  The dollar rally started at 03:00 EST with a large spike higher, and then it spiked up again at 08:30 EST after the unexpectedly positive Housing Starts report released at that time.  The buck is really starting to take off, driving cleanly through its 9 EMA.  I'm not sure the rally in the buck will continue - my sense is the Greek situation is nearing a positive conclusion - but we will soon see.  I give the situation another week before things are "resolved".  Of course larger issue of the Greek debt remains unsustainable and unaddressed, but the can will be kicked once again, for perhaps 10 billion Euros.

SPX (US equities) rallied weakly to a new all time high but the rally faded, with SPX dropping -1.37 to 2127.83.  As failed rallies go it wasn't all that dramatic, but neither is SPX looking particularly strong.  VIX rose +0.12 to 12.85.

Bond ETF TLT dropped once again, falling -0.89% and making a new cycle low.  Bonds did try to rally early in the day, but the rally failed - much more dramatically than SPX.  While the dollar is seeing a lot of inflows, the money doesn't seem to be helping long term bonds.

The CRB (commodity index) sold off hard, dropping -1.93%, and slicing through its 9 EMA.  It looks like a commodity correction may be upon us.

WTIC (west texas crude) paralleled the drop in the CRB, falling -2.09 [-3.46%] to close at 58.27.  It too closed below its 9 EMA, and oil looks to be entering its long-awaited (by me) correction.

While its tempting to focus entirely on the drop in gold (and thus feel bad about how the "paper shorts" are hosing us), if we look around, we can see that a lot of things dropped today.  Commodities, gold, silver, oil, even copper [-2.42%] fell.  Gold actually outperformed many other things.  Goldbugs sometimes feel singled out for beatings by the evil "naked paper shorts" but sometimes there are days when everything just gets sold.  That's why its important to look around and see how everything else did.

We'll see if the junior miners can maintain their outperformance.  Remember a few days ago I said that under some circumstances it is safer to "buy the dip" rather than "buy the breakout?"  I think we're seeing a dip right now...anyone who bought the breakout has already been rinsed...at times like this, patience is rewarded.

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14 Comments

davefairtex's picture
davefairtex
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Europe: stamping out cash. Here's why...

Martin Armstrong penned a great article on how Europe will be the first in the world to try and stamp out cash.  He laid out the string of evidence:

http://armstrongeconomics.com/archives/30738

1) Brussels only exists because of the Euro.  Thus, anyone threatening the Euro in any way is an existential threat to the power of Brussels, and needs to be stamped out with all the force that the central government (and the supporters of the European Project) can muster.

2) The Euro has a fatal flaw; because there is no consolidated Eurozone debt, anyone "buying the Euro" as reserve currency (banks included) must buy currencies of all the countries in order to be politically correct in order to support the project.  This means, if one country has a problem, this undermines the banking system.  US federal debt is completely independent of the debt of, say, Puerto Rico, and thats a huge advantage for the buck.

3) Dropping rates below 0% to stimulate the economy hoses savers & the elderly, who must work longer to survive, taking jobs away from the youth.  This also hurts confidence - which drives deflation.  Deflation drops government revenues, who then have to hunt down every last nickel to provide for their own jobs and pensions.  Rates below 0% also drives a move into cash, which causes the governments to take offense.  "How dare you oppose our will?"  Answer?  Eliminate cash.

4) Of course, eliminating cash just in the Eurozone won't work - money will flee Europe even faster to a place where cash still exists.  Thus, the next step along the line is the likely imposition of capital controls.

5) Above all, this is about a massive crisis of confidence in government.  Since they have the guns, and they see themselves in a fight for their own survival, We the People are the enemy - especially if we use cash.  Its all very zero sum at this point.

Armstrong:

Brussels will lead the charge to shut down cash as we know it. We are moving into the next stage of massive deflation I have been warning about – not HYPERINFLATION. Government[s] are moving to control everything and you will not be able to buy or sell anything without government approval. This is the Economic Totalitarianism I have warned about is on the horizon.

The next step in the game will be CAPITAL CONTROLS. When the European government realizes that they cannot eliminate cash without the rest of the entire world simultaneously, money will move out even faster from Europe driving the dollar to excessive highs. They will most likely follow the same script as they did in Cyprus and impose currency controls to prevent money from fleeing.

The only way out of this mess will be to change the thinking process. This is the real fight. As I have said many times before that the HYPERINFLATIONISTS are dead wrong and we will PRAY FOR INFLATION before this comes to an end. We are in the meltdown mode of Western Civilization all because of debt and lawyers controlling government who think they can be dictators by just writing laws.

Kind of reminds you of what Chris said.  We desperately need a change in narrative.  The same thinking that created the problem is ill-equipped to provide the solution.

 

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thc0655
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The story of our lives

Dave, 

You keep disturbing me with these comments on banning cash and capital controls.  I'm reading the same/similar news pieces and coming to the same conclusions you are, but you saying it tells me I probably can't hope to be wrong - it's actually coming.  I'm trying not to rush out TODAY by responding to what TPTB are going to do along these lines EVENTUALLY.  But I'm even more trying not to be one day too late.  We now have all major central banks printing money, holding down interest rates to world history low levels, and floating trial balloons about capital controls/banning cash.  So maybe they'll each take steps toward banning cash and capital controls on their own schedules and it will take a while before they have us locked into a coordinated global regime. I hope you're right in your previous comment that they will gradually ratchet up the control so we will have time to see and adjust.  That is the ONLY reason I'm not submitting my retirement papers today and heading for the proverbial hills.

I have been onboard with Chris's analysis that we will have a deflationary scare, then huge helicopter drops of printed money, then very high inflation/hyperinflation, then a final deflationary collapse.  However, you and Armstrong have now got me concerned that They will not do what They ALWAYS have done (debase the currency because They have "no other option").  I think modern technology (digital "wealth" and currency, mostly) may give today's PTB one option besides debasing the money supply they've never had in the last 3,000 years: capital controls and banning cash (made more effective than ever before in human history because so much "wealth" is digital). The music is still playing but I'm edging ever closer to the exit door and keeping a keen eye on the vultures running the show.  If you're right about the stair step/ratchet approach and Armstrong is right about the timing, I should step through the exit just before they drop the hammer.

But you left out the part of Armstrong's article that most connected with me in a spiritual/emotional way: the cartoon.  I'm reproducing here because I bet it will resonate with so many of our PP community. It's funny in a very dark kind of way.

History-Repeat
 
"Welcome to the Hunger Games. And may the odds be ever in your favor."
 
Tom
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Jim H
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Rubino's take...

John Rubino joins us for his latest weekly installment.

Once cash is outlawed the government will be in complete control of your financial decisions, or so they think. When they want you to spend more, they turn up the pressure to spend and when inflation starts heating up they’ll turn it down. However, man is very ingenious and will come up with a way to beat the bankster, guaranteed! Whether it’s with gold and silver or with gift cards the law of unintended consequences will prevail.

http://hwcdn.libsyn.com/p/f/2/4/f2464093cf9ce9b9/John_Rubino_18.May.15.m...

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thc0655
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Banning cash might not be very easy

https://www.linkedin.com/pulse/cashless-society-erico-matias-tavares

To be most effective, banning cash would most likely need to be coordinated between the US and the EU. Otherwise if only one of the two Western economic blocks were to do it, the citizens of that block might start using the paper currency of the other, thereby circumventing the restrictions of this policy. Can’t settle your purchase in paper euros? No problem, we’ll take US dollar bills.

This is just one aspect that can give us a glimpse of the wide ranging consequences this policy would have. Let’s quickly consider some pros and cons, as we see them:

Pros:

  • Enhance the tax base, as most / all transactions in the economy could now be traced by the government;
  • Substantially constrain the parallel economy, particularly in illicit activities;
  • Force people to convert their savings into consumption and/or investment, thereby providing a boost to GDP and employment;
  • Foster the adoption of new wireless / cashless technologies.

Cons:

  • The government loses an important alternative to pay for its debts, namely by printing true-to-the-letter paper money. This is why Greece may have to leave the euro, since its inability or unwillingness to adopt more austerity measures, a precondition to secure more euro loans, will force it to print drachma bills to pay for its debts;
  • Paper money costs you nothing to hold and carries no incremental risk (other than physical theft); converting it into bank deposits will cost you fees (and likely earn a negative interest) and expose you to a substantial loss if the bank goes under. After all, you are giving up currency directly backed by the central bank for currency backed by your local bank;
  • This could have grave consequences for retirees, many of whom are incapable of transacting using plastic. Not to mention that they will disproportionately bear the costs of having to hold their liquid savings entirely in a (costly) bank account;
  • Ditto for very poor people, many of whom don’t have access to the banking system; this will only make them more dependent, in fact exclusively dependent, on government handouts;
  • We wonder if the banks would actually like to deal with the administrative hassle of handling millions of very small cash transactions and related customer queries;
  • Illegal immigrants would be out of a job very quickly – a figure that can reach millions in the US, creating the risk for substantial social unrest;
  • If there is an event that disrupts electronic transactions (e.g. extensive power outage, cyberattack, cascading bank failures) people in that economy will not be able to transact and everything will grind to a halt;
  • Of course enforcing a government mandate to ban cash transactions must carry penalties. This in turns means more regulations, disclosure requirements and compliance costs, potentially exorbitant fees and even jail time;
  • Banning cash transactions might even propel the demise of the US dollar as the world’s reserve currency. The share of US dollar bills held abroad has been estimated to be as high as 70% (according to a 1996 report by the US Federal Reserve). One thing is to limit the choices of your own citizens; another is trying to force this policy onto others, which is much harder. Foreigners would probably dump US dollar bills in a hurry and flock to whichever paper currency that can offer comparable liquidity.

In light of the foregoing does banning cash transactions make sense to you? Aren’t the risks at all levels of society just too large to be disregarded?

Yes, but just because it's a very, very bad idea doesn't mean government won't do it anyway.  Besides, what's that poster say?  "Government: if you think the problems we create are bad, just wait until you see our solutions."
cmartenson's picture
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The reason we won't go to a cashless society

Here's the only solid reason I can think of for why we won't move to a cashless society.

What would Congressmen use to pay their prostitutes?

 

/Semi-serious answer....something like Bitcoin which explains its free-pass from the Treasury Dept. so far...

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A reminder from the folks at Sprott about Gold....

http://www.zerohedge.com/news/2015-05-20/where-does-gold-trade-stand

At Sprott, we are amazed that gold’s role as a productive portfolio-diversifying asset is still questioned by so many. During the past decade-and-a-half, gold has posted the most consistently positive performance of any global asset, yet is still scorned by consensus. What part of gold’s track record is so difficult to understand? Figure 1, below, outlines performance of spot gold in nine global currencies during the past 15 years. Despite widely divergent monetary and financial conditions, the performance of gold since 2000 has significantly exceeded any asset class with which we are familiar. How could such an admirably performing asset continue to elicit such broad indifference?

 

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Painful Laughter
cmartenson wrote:

Here's the only solid reason I can think of for why we won't move to a cashless society.

What would Congressmen use to pay their prostitutes?

 

Ouch....

Just for entertainment sake.....how much documentation do we have of this?

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Jbarney
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By The Way

I remember a documentary....Frontline....maybe it was on Netflix, I am not sure, which talked about the activities of those involved in the 2008 crisis.....and the elites (bankers, congressmen, etc) basically spent money on cocaine and prostitutes left and right.  Some of the insiders basically admitted, "Hey, what else are you going to spend your cash on?"  Anybody remember the interview or the show? 

Just in a mood to bash the elite I guess. 

Presently home sick with a screwed up back.  Unable to do any physical work around the property right now.  (Groan)

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davefairtex's picture
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War on Cash: how is it going?

Tom-

So maybe they'll each take steps toward banning cash and capital controls on their own schedules and it will take a while before they have us locked into a coordinated global regime.

Right now, I don't see any signs that the actual cash in circulation is dropping.  In fact, when viewed as just a raw number, currency is steadily increasing and is apparently more popular than ever. 

Viewed as a ratio of money supply, the proportion of cash is actually growing, both in Europe and the US.  This will be an interesting struggle: desire to impose negative rates on us all and to track literally everything we do, vs the folks in power's need to pay for their "hookers and blow" with something.  The illegal economy must survive to protect their perks, and yet how can they restrict law-abiding citizen's desire to escape repression?

Perhaps the answer is, there will be money laundering services for favored illegal enterprises, with the law abiding citizens forced to jump through hoops to use cash.

Chart below: percentage of cash vs bank deposits.  If the war on cash was having an effect, it hasn't shown up in the numbers.

For me, the whole "eliminate cash" push is a western concept.  Cash is so deeply ingrained in Asia that there's no way they could ever get rid of it.  How else would the corrupt officials get their payoffs?  Eliminating cash: Not Gonna Happen in Asia.

As Jim H suggests, it probably won't work to get rid of cash entirely.  They'll just make it really hard to use, and they'll give law enforcement even more of an "open season" on any one "caught" with cash.  We're already guilty-until-proven-innocent with cash.

Which reminds me.  If you have a bunch of cash: you might consider keeping a paper trail of how you got the cash and when, preferably from a bank account where you had your paycheck auto-deposited.  If they are going to force you to prove your innocence, might as well have the proof all lined up just in case.

Its getting tougher and tougher to be a law-abiding citizen.

Ultimately, I don't see this as a done deal or some inevitable outcome, but rather as a statement of intent that bears keeping a close eye on.

Unintended consequence of hunting down cash: even more money goes into hiding in other concentrated stores of value.  Money flees in advance of policy.  Me, I'd choose single malt scotch.  What are they going to do, arrest me for having twenty cases of Macallan 25?

Risk to that strategy: I might eventually drink all my savings.  Then again I'm pretty cheap...I could probably resist...

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Wendy S. Delmater
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it's changing my behavior

If you have a bunch of cash: you might consider keeping a paper trail of how you got the cash and when, preferably from a bank account where you had your paycheck auto-deposited.  If they are going to force you to prove your innocence, might as well have the proof all lined up just in case.

Seriously. Just yesterday, I was moving some of our IRS refund from my bank account to my husband's at a different bank. I'd run out of checks, and I asked them to make me one up. It was over $2,000 - and I sort of freaked out when they handed me the cash instead. I insisted they re-deposit it, and give me a check instead. I did not want to (a) be subjected to some sort of federally mandated paperwork labeling me a potential drug dealer or (b) risk having the money stolen (this includes civil forfeiture.)  I got some strong looks at how forcefully I asked them to "put it back" into the account.

But there were reasons I wanted a paper trail for where my money went, and not a paper trail that said I took cash out.

Jim H's picture
Jim H
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I unabashedly take cash out regularly.

It is my right.  I mix it up.. sometimes $2000, a few months later $3000.  I build up my stock of at home cash, and I spend it as needed so that I am not making small pulls from the ATM all the time.  Sometimes it changes hands at a coin show.  Use the right, or lose it I think.     

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Private Safe Deposit Box Rentals

Safe Haven Private Vaults in Utah.

1-801-569-3000.  Interesting info.  Many sized boxes with costs.  Is this available in NY?  Help. Ken

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fated
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Frequent removal of cash from the system

I agree with you Jim.

I regularly remove cash from the ATM (though here the daily limit to deduct from your EFTPOS card is $1000 including purchases at the shops) and stockpile for when it may be needed. Just got a nice discount on an urgently needed second hand car because I could pay cash. Suited the seller and I, and I didn't have to pay the bank $30- for the 'service' of writing me a bank cheque. I earned it - it's mine - to store and spend as I like.

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