Happy hunting for those silver stocks.

Next, there was the remarkable dichotomy in the changes in the relative holdings of metal in the big gold and silver ETFs. On the sharp price decline, the gold ETF (GLD) liquidated almost 8% of its physical metal holdings by 1.6 million ounces ($1.5 billion) in just three days. This put the actual gold metal holdings in the GLD to a five month low, down some 5% since near year end

Over that same time period, the actual metal holdings in the big silver ETF (SLV) have grown substantially, up some 37 million ounces, or 25%, since just before year end. And the holdings in SLV did not decline at all over the recent sell-off, as its gold counterpart did. My sense is that more silver may be about to come into the SLV. The important question is why did gold get liquidated while silver did not?

The answer appears obvious to me - common sense may be breaking out all over. One of my consistent themes has been the relative value of silver compared to gold. While not yet reflected in price, the relative value thesis may be starting to become apparent in the recent changes in the gold and silver ETFs.

One measurement I follow is the relative difference in the dollar amount of metal holdings in the two big ETFs, GLD and SLV. Currently, there is less than 5.5 times as much gold in dollar terms in the GLD ($17 billion) as there is the dollar value of silver in SLV ($3.1 billion). This is the smallest amount by which GLD has exceeded the SLV to date. When you consider that there is more than 250 times more gold in the world, in dollar terms, than silver, the fact that the biggest gold ETF only exceeds the dollar amount of metal holdings in the largest silver ETF by 5.5 times is mind-boggling. (Especially when you consider that the gold ETF had a 1.5 year head start on the silver version.)

A visitor from another planet would surely be scratching his head about the current price discrepancy between gold and silver. The one that is the more rare and needed is selling for less than 2% of the price of the other. It would quickly occur to the alien that if just 1% of all the money represented by gold, attempted to switch into silver, that would equal an amount more than 3 times all the silver in existence. The visitor would wonder deeply how so few of the earth’s 6.5 billion inhabitants could not see such a situation on two items that dated from the birth of human history. I’d be willing to bet that such an alien, should he exist and have a desire to make some big human money, would buy silver.

The last piece of silver news was a report from Reuters in Japan that Mitsui indicated that it had developed a process that could replace platinum with silver in certain diesel-engine catalytic converters. At first blush, the news would seem to be more bearish for platinum prices, given that this is the main usage for platinum, than bullish for silver, given the potential actual ounces involved.

But the report does make you think about what a versatile and vital metal that silver has become in so many different applications. Further, it puts a new twist on the issue of substitution. Heretofore, most of the substitution stories concerning silver were always of the version of silver being substituted by some cheaper material. What the Mitsui release brings to light is the great potential of silver being the material doing the substituting for more expensive materials. And since silver is less than 1% of the price of platinum, it’s hard to imagine a more sensible substitution.

Given all these bullish news events in silver, a reasonable man would have thought that silver would have climbed dramatically in price this past week, instead of declining by about a full dollar. But such a reasonable man would have to be unaware of the most glaring feature in the current price structure of silver. Of course, I speak of the historic concentrated short position on the COMEX. This feature, alone, accounts for silver dropping sharply in the face of extraordinarily bullish news. Manipulation just doesn’t get any clearer.

While there was not much change in the most recent COT for silver (or gold), another infamous milestone was recorded. The true concentrated short position of the 8 largest traders in COMEX silver futures reached an astounding 82% of the entire real net total market. Gold remained at an equally astounding 80% for the 8 largest short traders. Never has any market witnessed such a lopsided and manipulative configuration.

I know this is somewhat of a complex concept to grasp, so please allow me to explain it more fully, as I believe that this issue may come into the forefront shortly. The issue is the true extent of concentration on the short side of COMEX silver and gold futures. (And for the life of me, I don’t quite understand why proponents of a gold price manipulation don’t use or see this issue as central to gold as well. Nothing proves a gold manipulation more than the current historic short concentration).

In order to derive the true extent of the short concentration, we must drill down to the true net open interest in silver (and gold). To do that, we must simply subtract all the intra-market spread positions from total open interest. That is not hard to do, and I‘m going to walk you through the calculations on silver. All that one must do is go to the long form futures-only COT http://www.cftc.gov/dea/futures/deacmxlf.htm and first determine the number of contracts held net short by the 4 and 8 largest traders, by multiplying the net percentages given by total open interest.

For example, in the current silver COT report for positions held as of April 22, the net percentage held by the 4 largest short traders is 38%. For the 8 largest traders the net short percentage is 46%. Multiplying those percentages by the total (gross) open interest of 153,234, the actual number of contracts held net short by the 4 largest traders is 58,229. The 8 largest traders hold 70,488 contracts net short. Those are hard numbers that we’ll set aside for a moment.

The last calculation we must make is to remove all the spreads from the total open interest and then derive the true concentration in percentage terms, using the hard number of contracts that we just set aside. We must first remove all the stated non-commercial spread positions (33,512) from total open interest. And then we must further remove a similar amount that is held by the commercial traders that is not separately stated. It certainly is not the case that the commercials always hold the same spread amounts as the non-commercials, but in this case they do, both in gold and silver. I can prove this by other calculations involving the raptors,

Therefore, the true net open interest in silver futures is around 86,000 contracts (153,000 contracts minus 67,000 spread positions). Dividing the hard number of contracts held by the largest traders that we set aside, by the true net open interest of 86,000 we can quickly determine that the percentage of concentration held by the 4 largest traders is 67.7% (58,229 divided by 86,000) and not the 38% stated in the COT. For the 8 largest short traders, the true percentage of concentration is 82% (70,488 divided by 86,000) and not the 46% stated in the COT.

In terms of concentration there is a material and significant world of difference between a 38% concentration and a 67.7% concentration (for the 4 largest traders). And an equally wide difference between a 46% concentration and a 82% concentration. Let me be clear - I think I could and do make a convincing case for manipulation using the percentages as stated in the COT. But by using the real and true percentages, I think it would be impossible for anyone to argue that these percentages were not manipulative.

Let me state it in different words. Other than the 8 largest traders, all the other short traders in the world combined only make up 18% of the all the net shorts on the COMEX. The largest and most influential silver market in the world has 8 traders controlling more than 82% of the market. There has never been a more lopsided and concentrated short position in history. Have the regulators taken leave of their senses?

We think too much and feel too little.

Life is a beautiful magnificent thing, even to a jelly fish.

All from - Charlie Chaplin, 1889 - 1977

Charlie Chaplin

BIG GOLD: Gold has passed its 1980 nominal high. Why do you think it's breaking out now?
Doug Casey: The fact that gold has moved above its 1980 high is meaningful only in an academic way; today's dollar is worth only a fraction of a 1980 dollar. From here on, it's best to avoid thinking about anything just in terms of dollars. What's developing now is likely to be the biggest monetary crisis of the past 100 years, potentially the biggest since the U.S. Civil War. This isn't a prediction, just an appraisal of the tumultuous possibilities that are opening up. Americans are going to have to learn to think more like Argentines: if an Argentine tried to keep track of value in the local peso, he'd be bankrupt in 5 years.
BG: There are those who agree with you about a possible crisis but believe we'll see deflation instead of inflation, or at least deflation before inflation.
DC: What we're facing is a monumental monetary crisis that can take one of two forms. It can be deflationary, where billions and billions of dollars are wiped out through bankruptcies and defaults, and the remaining dollars become worth more as a result. Or it can be inflationary, where the world's central banks keep dollar assets from being wiped out by supporting the issuance of debt --- which is what they're currently doing, by propping up failing banks and homeowners who can't pay their mortgages. Those are your two alternatives. You can have either one - it's really a flip of the coin as to which you get.
It's also possible you can have both at the same time. You could have deflation in some areas of the economy, such as real estate, which is happening now, and inflation in other areas of the economy, where prices are going up, as with food and oil.
I'm of the opinion that government is so big and so powerful now, and the average person - idiotically - relies on it so heavily, that much higher inflation is inevitable. They're certainly going to do their very best to keep a deflationary collapse from happening, because they all remember what it was like in the U.S. in the 1930s. Yet not too many people think about Germany's inflationary collapse in the 1920s. It was much more unpleasant.
Inflation is the enemy of the person who works, saves and invests. But it's the friend of the speculator.
BG: Why do you think gold stocks have lagged while gold has taken off?
DC: Gold stocks are a play on gold. But they're also stocks. The best environment for them is when both gold and the general market are moving up, and lately the stock market has been problematical. People are going to panic into gold, because it's cash - money in the most basic form. Gold stocks are not money; they're speculative vehicles. And despite the strength in gold, the costs and risks of finding and building mines have gone up just as fast in the last couple of years. There's no necessity for them to move in lockstep with gold itself. That said, I think gold stocks are really going to howl as gold goes into the Mania stage.
BG: The water in the pot is definitely getting hotter. Where do you think gold is going this year?
DC: Gold has been in a bull market since 2001. It's gone up, on average, about 25% per year compounded, and there's absolutely no reason the bull market should stop now. On the contrary, there's every reason to believe that the gold bull market, having gone through its Stealth stage and still being in its Wall of Worry stage, is going to hit the Mania stage. To sell now would be to leave the big money on the table.
My best advice is, be right and sit tight. And that means staying long until you see a golden bull tearing apart the New York Stock Exchange on the front cover of Newsweek magazine, at which point it will be time to sell.
BG: What price do you think gold will hit in 2008?
DC: Strictly gazing through a crystal ball, I think it's going over $1,200, no problem.
BG: What about the long-term price for gold?
DC: Just to reach its previous high in purchasing power, gold will have to go over $2,500 - probably more like $3,000 after you discount the phoniness in the government's CPI numbers. But because this crisis is much more serious than the one in the late 1970s and early ‘80s and much more far-ranging, $3,000 is actually a fairly conservative number. I'll say it again: gold is not just going through the roof, it's going to the moon.
BG: What advice would you give to readers of Big Gold about how to invest in gold and gold stocks in the coming environment?
DC: The first thing is, you've got to have a lot of physical gold in the form of gold coins. Second, make sure a large chunk of those coins is outside the political jurisdiction where you live. If you live in the U.S., they've got to be outside the U.S. If you live in Canada, they've got to be outside Canada, and so forth. Third, gold stocks are definitely going to howl, so you definitely should have a good position in them.
As important as gold and gold stocks are, though, I suspect we're going to see foreign exchange controls of some type or description in the years to come. That means if you don't have assets outside your native country, you're going to be caught like a lobster in a trap. I think it's very important to diversify internationally. Buying foreign real estate is one prudent way to do so because, even though there's been a worldwide property mania, there are still some places where property is very cheap, leaving plenty of upside. In addition, if you pick a locale where you'd like to live, you'll have a comfortable place to wait things out - which is a serious plus, because I think things in the U.S. are going to get really ugly in the years to come. And most important, the government can't make you repatriate foreign real estate.
BG: What if I don't have the ability to buy real estate outside the country I live? I know you can have a foreign bank account and a safe deposit box, but I have to report those, so how does that help me?
DC: You have to report a bank account, but you don't have to report a safe deposit box.
BG: What if I have over $10,000 of coins in that box?
DC: It doesn't matter. It's just like having a million dollars of foreign real estate - not reportable. Of course they can change these arbitrary laws - probably to make them more restrictive and invasive - at any time.

Why does he want to change the greatest nation in history? To what?

Charlie Chaplin

The root causes of recent problems have been visible since last August. Then in September the Fed held its annual
gathering of financial leaders at Jackson Hole, Wyoming. Axel Weber, president of Germany’s Central Bank, told the
gathering that: “The current turmoil in the financial markets has all the characteristics of a classic banking crisis, but one that is taking place outside of the traditional banking sector.”
A review of the gathering by Knishna Guha appeared in the London Financial Times. It included these observations:
“Some Federal Reserve policymakers privately see comparisons between the current distress in credit markets
and the bank runs of the 19th and early 20th Century, in which savers lost confidence in banks and demanded their
money back, creating a spiraling liquidity crisis for institutions that had invested this money in longer-term assets. The scenario ultimately led to the creation of the Federal Reserve System as a lender of last resort. However, the tools that modern central banks possess to address liquidity problems can only address such runs inside the traditional banking system, and do not directly touch the NON-BANK FINANCIAL SECTOR which has been hardest hit by the current credit crisis. Mr. Weber’s analysis highlights the dilemma facing central banks, which cannot channel funds directly to the non-bank financial sector.” (End quotes,)
The Federal Reserve System does in fact have powers to lend money to the non-bank financial sector. Dr. Ben Bernanke had discovered them years ago while reading the fine-print of the 1913 enabling Act for the Fed.
BEFORE I GO INTO HIS ACTIONS, I THINK IT IS NECESSARY TO GO BACK IN HISTORY TO EXAMINE BRIEFLY THE FACTS THAT LED THE PRIVATE BANKING INDUSTRY AND THE CONGRESS TO CREATE TODAY’S FEDERAL
RESERVE SYSTEM, WITH ALL OF ITS POWERS.
Place yourself back in time, to New York City on October 21, 1907. Another of the periodic runs on
banks that had plagued the U.S. since before the Civil War had just been digested and apparently stopped by a
committee of Bankers, led as usual by J. Pierpont Morgan.mind to a task few if any dared oppose him. Late that day,
a brilliant young banker named Benjamin Strong, whom Morgan had borrowed for the occasion from Banker’s Trust
Co., reported back to him that the books of Knickerbocker Trust – the key player in the dangerous run unfolding –
were in such poor shape that Strong could not tell whether Morgan should move to save that Trust Company.
But Strong had learned that the directors of the Knickerbocker Trust had assembled that evening at one of
the city’s premier restaurants, and had left the door of their private dining room wide open. Observers had gathered at the open door to listen as the directors loudly bragged about their wild speculative gambles, using depositors’ money. Word of this dinner party spread fast in New York City. By the time the Knickerbocker Trust opened its doors the next morning, double-wide lines of depositors waiting to withdraw their money spread out for blocks in two directions. The Trust directors, in panic, made a phone call to Pierpont Morgan, begging for cash loans so they could stay open. He told them he would not help them. And he didn’t. It took just three hours of a run to snuff out the life of that huge Trust Company.
Trusts had once been the most conservative of financial institutions. They were not banks and really had no claim
for support by banks. But on that day, Strong and Morgan discovered that there were interlocking directorships between Trusts and Banks. That was only the beginning. The trusts had become deeply involved in new kinds of investment schemes involving gigantic leverage, something previouslynot customary in the banking world. The downside risk uncovered by Morgan was frightening to all whom he let in on it. He kept the news away from the New York Times, which was poking around the fringes of the story and running front-page articles. He was afraid panic could quickly spread like an out-of-control forest fire and threaten to destroy the U.S. banking system.
So Morgan chose the soundest Trust Companies and immediately set in motion a rescue operation. He pledged
millions of dollars to guarantee their deposits, but in return he extracted a promise that they would get out of any
speculative ventures and not go into new ones. At first the news of his actions only frightened more people into rushing to get their money out of their bank accounts. Morgan put out a call for assistance. John D. Rockefeller responded with millions. So did President Theodore Roosevelt, who directed the Treasury Secretary to draw down the government’s stock of small bills and deliver them to Morgan. But the Panic refused to end. The Rockefeller cash was soon gone and so was the Treasury’s supply of bills. Morgan dipped deeper into his own pockets (he had a
fortune worth $400 million) and he successfully talked other bankers into supporting every Trust Company that Benjamin Strong decided was a good risk. The runs broke out here and there for a number of weeks. The amounts withdrawn kept getting smaller. The stock market was rising again (It had crashed to a low on the day the Knickerbocker Trust went broke). And by March of 1908 the Panic was fully and finally over. But the nation’s financial structure had been threatened in ways never seen before. Private Bankers and Congressmen began to hold discreet meetings to discuss creation of a lender of last resort — a new bank that could save the system from collapse in an emergency.
They all knew two things: One, the new bank would have to be very powerful in order to replace the great Pierpont
Morgan, who had been protecting America for years but was no longer a young man. It would have to be granted
substantial day-to-day power to regulate, control and even issue money. But the larger overall power and control was to be left in the hands of Congress. That is because the founding American constitution placed full and total power over money in the hands of the Congress and ONLY the Congress. This government-chartered private bank would have to be empowered as a lender of last resort, which meant that it had to be allowed to create money. That feature was missing in 1907 and had been desperately needed. And two, it would have to be a private bank sheltered under the protection of the federal government but still mostly independent of the government and especially beyond the reach of the Treasury and the President. That is one fear that had been in America from its founding days. And so the Federal Reserve System was conceived.
It was to be decentralized, another American feature. There would be twelve regional Federal Reserve Banks, each independent in most ways but tied into an interlocking system.The New York Fed was to be given the most power and the President of the New York Fed would in fact preside over the system. (Benjamin Strong was given that job and title, and served until an illness took his life at a young age in 1928, leaving the Fed leaderless as it stumbled into the Great Depression. Without Strong’s steady hand, Wall Street in 1929 had broken out into an orgy of speculative lending and borrowing, with tragic results. It has to remind you of the way, under the permissive Greenspan, Wall Street firms – especially non-bank investment banks – left their traditional roles and traded with gigantic leverage on their own account, and everyone plunged into speculative devices unknown only a half-dozen years earlier.)
The final touch in 1913 was purely American. The twelve private regional Feds were to be owned by the commercial banks in their territory. The boards of directors to be divided into three groups. The first was to be chosen from the biggest banks in each district. That would mean that in Texas Oil Money might dominate. In the Midwest it would be farming. In the Northeast it could be financial affairs. There were two more groups of directors, with small banks having directors’ seats reserved for them. The Congress set up a small Board of Governors in Washington, led by a Chairman. That Board was not considered important in 1913, the year the Fed opened for business. One year later, World War One broke out in Europe and Washington began a climb in power that has carried us to the situation today. Ironically Dr. Ben Bernanke, as chairman of the Board of Governors in Washington, is a big fan of Benjamin Strong, and through Strong and now Bernanke the anti-speculative, anti-leveraged finance ideals of Pierpont Morgan still live,
That is why Bernanke dared act as boldly and decisively as he did when he had J.P. Morgan acquire Bear Stearns. Just as the Trust Companies were not banks, neither are investment banks. And just as Strong discovered that an interlocking series of directorships meant that the collapse of one bank in 1907 could pull down the whole banking system, so too did Bernanke come to realize that derivatives had sent Bear Stearns tentacles reaching out to so many banks and investment banks in America, Europe and Asia that were they allowed to fail the bankruptcy court might be forced to take actions that threatened the whole Western World.
In stepping into the world of Investment Banking, which Congress may now add to his regulatory domain, Bernanke
was able to send the word out across the country – he would protect them against their enemies who wanted them
to fail, but in return they had to pull back from the long list of dangerous speculative activities that had been growing
fast in the years of Greenspan. Thus I feel the bottom is in place - marked by the closing of Bear Stearns, and
very soon we will witness a new Age of solid growth in America, possibly led by the most conservative finances
since the 1950’s.

Now what I want you to do to help everyone in your close contact is let them know that the world and the USA is going to come out of this recession soon and be prepared for it. Pass on to your inner circle of friends who invest in the maeket this web site and recommend they read this blog.

Now is the time to be adding to your metals because of all the money that has been created has to go after goods which causes inflation.

BERNANKE IS ON THE JOB – AND WILLPROTECT YOU!
INCIDENTALLY, BERNANKE HAS BEEN A BIT
MORE CAUTIOUS WHEN IT COMES TO
CUTTING INTEREST RATES. DR. BEN HAS
WRITTEN EXTENSIVELY ON THE
INTERACTION BETWEEN INTEREST RATES
AND THE ECONOMY. MY CLEAR IMPRESSION
IS THAT HE FEELS MONEY SUPPLY IS FAR
MORE CRITICAL THAN INTEREST RATES
WHEN IT COMES TO PROMOTING GROWTH.

To help a friend in need is easy, but to give him your time is not always opportune.

Charlie Chaplin