Monday, September 26, 2011

Can We Even Own Private Assets?

Readers should note that through the end of the month posts will be sporadic as we write during our travels in Ukraine.

Following up on our silver price analysis we concede that silver broke from a consolidation pennant and fell like a prop in a roadrunner cartoon.

For new readers, silver is a currency not an industrial metal. Although it has a monetary status it trades on a levered commodity exchange and is subject to the management of that exchange. Selling escalated Thursday and Friday growing right into the close. Each move down created a massive and unusual gap. After the market close the CME released their new margin requirements:

While many charting rules are worthless in this type of controlled market, one rule still remains true: all gaps must be filled. The drop in silver created massive gaps on our charts. The likelihood that this is one part of a shock move to permit QEIII is high. In the event that a new round of money printing will be undertaken to "Save" Europe these gaps will be closed rapidly.

This is a wonderful reminder that monetary metals are not intended for "trading" and instead should be the cornerstone of a well-positioned balance sheet. Physical ownership is desirable and leverage is to be avoided.

Finally, China raised requirements on their exchange this morning sending gold down to the basement again

As we move forward ask yourself which assets can be owned in this type of environment? The market strongmen are trying to force you into dollars and sovereign debt. If you don't want these assets, for logical reasons, maybe take a week off and seek clarity. Again, there is an extremely high likelihood that just as the TARP bill was cover for European Bank relief, QEIII is going to provide desperately needed liquidity for continental Europe.

Remember readers, the world is struggling with a mountain of paper debt and all of these nations are bankrupt. There is a massive amount of debt backed by a tiny amount of capital. If creditors were to collect, there would be fights over the recovery of pennies.

The public must be behind the next round of bond issuance as the US is making too much noise over debt concerns. If they must shock the markets into agreeing to further debt enslavement maybe you should seek cover until the obvious is announced?