I felt it necessary today to re-visit my older view on the silver market. Most readers know that I have been extremely bearish on silver since the euphoria phase peak in May of 2011 and that acceleration of my bearish view took hold after the gold double top in October of 2012.
I wanted to go back to the post I made on October 18, 2012 in which I cited the formation of a very bearish pattern emerging in the silver market because we are getting closer to possible confirmation of the pattern I highlighted at the time. Remember, the time frame associated with the chart was a long one which is why the pattern was taking so long to develop but I do believe we are reaching a very important crossroads for the silver market and that crossroad is coming soon.
Remember in that post I charted out a troubling large head and shoulder top forming in silver? Here’s the original chart I posted at the time:
As you can see, prices have since moved well below the area of prior strong support and the pattern of that head and shoulder top is starting to become clearer.
Keep in mind that we need validation before we can make an absolute call, but with prices failing to even come close to charging forward despite Helicopter Ben Bernanke’s testimony of the last couple of days (remember, according to the silver bugs, it was supposed to be that endless QE that was going to propel silver “to the moon”) I remain extremely concerned that silver has seen the last of the high 30’s for quite some time to come and it will need to revisit lower levels before major buying kicks in.
As I have often pointed out with head and shoulder formations, we look at the neck line and we see how far above that neck line the price peak was. We can then use that as a reference to the ensuing correction of the pattern confirms. With that said, the neck line is $26.15. The peak was $37.58. That is an $11.43 move (approx a 43% move). Should silver crack that neckline, it is not inconceivable that a move down of roughly 43% would ensue or, we could see a bottoming out of silver at roughly $18.50 (an equal move down of 40-45% for the pattern to complete). Now before anyone goes crazy filling my inbox with all sorts of banter and quotes from the silver bugs that is often regurgitated without anyone ever verifying their claims, keep in mind that no pattern ever needs to fulfill or confirm and any news event can change the outlook on a moment’s notice. Technical analysis is not an exact science but despite what people claim, major patters like this often confirm as have many of the major patterns along the way. See that double top at 35.44? That pattern validated. See that minor head and shoulder at $37.58? That pattern validated. See that head and shoulder comprising the left shoulder on the above chart? That pattern validated. Lastly, continuing to work left on the chart above, see that head and shoulder pattern with 44.28 representing the head? That one too validated. So, say what you want about technical analysis, it is more often correct than wrong.
What has me so concerned is simple and I will lay it out for you as elementary as possible;
- We had extreme bearish sentiment in gold and silver over the last month. Despite that, rallies have been muted and unsustainable.
- We were supposed to see exceptionally higher silver prices because of the FED and ECB money printing. If it isn’t obvious to anyone by now, those theories can be thrown out the window;
- Two days of Bernanke testimony that helped propel the stock market higher failed to cause a lift in the gold and silver markets … only temporary but sellers came back in droves.
- The silver chart looks absolutely terrible at the moment with sellers outnumbering buyers by a great margin. In fact, when we do see bargain buyers step in, we note that they quickly trade out and are outnumbered by the sellers shortly thereafter.
There is one factor that might still lead to a major rally though in the metals and that is the extreme bearish sentiment that exists at the moment. However, note that despite the dollar doomsday experts predicting the end of the dollar, the US dollar continues to rally, negating what looked to be a head and shoulder pattern over in the dollar causing the metals to slump further. The Euro looks to break down again as extreme bullishness starts to wane over there which could pit additional pressure on the metals. Take a look at the current chart of silver over the same time frame of the chart above:
I have no position in the silver markets at the moment. I will get extremely short if this pattern validates and I will go long if I see a reversal. However, I am deeply troubled by the pattern taking shape in the silver chart and how it has come ever closer to confirming since I first wrote my piece in October of last year. Here’s my upward bias… First the chart:
Notice the top line of the downward trending channel in place since the $35.44 high. I would only go long for a potential extreme move IF we get a CLOSE above that trend line, or above $3.75. Right now, we are in a dangerous area and in my view, it would be smart to stay on the sidelines. Sure, one might lose a couple dollars of a move BUT, if I’m correct, we will see significant rally in silver if we break out of the aforementioned trend line or we will see a massive move down if my aforementioned pattern confirms. So, there is no harm for the moment in staying on the sidelines and letting this all play out.
Tread carefully my friends .. and enemies for that matter. The major indexes look to be putting in a major top and the commodities coming off may have been the lead indicator on that front. There is a positive in that last comment on the broader markets. If we do see a major market correction in the major indexes, where will the money flow? Part of me thinks it will flow into the safety of the dollar and perhaps gold. I am not convinced though that we have seen the lows in silver and gold and for a truly healthy move to the upside to ensue, perhaps a lower move, or a flush is needed.
Quantitative easing was supposed to be the saviour for gold and silver. Clearly silver has now given up most of its QE gains. Something that the perma-bulls won’t bring up because remember, that has been their reason for pumping silver bullion since 2009 and to be honest, for continuing to pump it since the top in May of 2011. We are now approaching 2 years post silver highs and where is the price of silver? Almost a full 50% lower. This is concerning. Many people got burned by buying massive amounts of “stackable” silver leading up to May of 2011. Many investors were wiped out by the May 2011 crash. Those buyers are understandably reluctant to come back tot he markets and I honestly feel this has hindered the metals but that’s just one reason of many but a strong consideration nonetheless.
Gold and Silver remain firmly in dangerous territory. My best advice at this time is to stay neutral and to not go short or long until we get validation in either direction. Nobody every lost money by staying on the sidelines. Trade safely, wisely and without emotion, although I understand that the latter is the hardest to do.
Yglesias then summarizes last weekend’s exciting Woodward-related events, and then updates us:
Surprisingly, though, Yglesias doesn’t mention that earlier this week, New Yorker writer Ryan Lizza published a journalistic scoop that undermined the thing about Woodward being a reliable chronicler of insider accounts of political events. Lizza quoted none other than Eric Cantor, who conceded that Boehner, at Cantor’s urging, reneged on the 2011 grand bargain deal at the last minute, for political reasons.
So, do you think Woodward might have decided to ratchet up the off-the-rails stuff a-few-fold yesterday because yesterday (or maybe the day before) was the day when Ryan Lizza’s New Yorker story broke? Yeah? You think?
Yes, that's right. Bob Woodward, the legendary Watergate reporter had turned a reliable chronicler of insider accounts of political events, and has now been exposed as a reliable and gullible tool of Republican insiders. But he hopes no one will notice that.
What I find interesting about this is that apparently the Washington Post has pulled the plug on Woodward’s unfettered use of it as a forum in which to spread false statements of fact. Thus he was relegated to seeking out Politico as his venue for the “breaking news” this time.
I can't help wondering, though, whether Sperling was right that Woodward might come to regret his flagrantly false reporting on what the sequester agreement is. He hasn't yet, though. He's still cowering with fear from that threat, but determined to press on nonetheless.
By the way, you really, really need to see Alexandra Petri’s threat-level piece on this. Seriously. (Just be sure you’re not eating anything you might choke on when you do.)
Trim Tab's Charles Biderman makes that exact claim in U.S. Entered Recession in January Yet Fed Fix Keeps Stocks Pumped.
Welcome to the new recession. TrimTabs tracking of real-time wages and salaries shows that the United States has entered into a recession this year. I had been predicting a slowdown after the big bump in December incomes due to the hike in taxes. It has taken a while for us to get a handle on income this year given all the changes in tax rates. But now enough time has passed that I can say I was right. The U.S. economy has slowed enough to enter into recession.Inquiring minds may wish to read the rest of Biderman's article for some interesting thoughts on insider selling, stock buybacks, and Trim Tabs' employment projections vs. BLS reporting.
This is how I know we have entered into a recession. After-tax wages and salaries net of inflation have been shrinking year over year since the second week in January. What has been growing dramatically in real time this year is income and employment tax payments. Withheld income and employment taxes have been running about 8.3% higher year over year, comparing the same 33 business days between Tuesday, January 8 and Monday, February 25.
Checking with our favorite official Washington economist, we now know that higher employment taxes accounted for 6% and new soak-the-rich taxes 2% of that 8.3% gain. That means that, before inflation, after-tax wages and salaries grew by only 0.3% for the 135 million Americans that have jobs subject to withholding.
After inflation? Well, what is inflation now? If you believe the Fed, around 2%. Others say higher. Regardless, there is no doubt that the Obama Administration has taxed us into a recession. Congratulations.
When Did the Recession Start?
Biderman claims the recession started in 2013. I suggest the US has been in recession since last June or July but the recession was masked over by four identifiable factors.
- Obamacare was responsible for huge hiring of part-timers in the third and fourth quarter, distorting unemployment statistics.
- Tax policy and Obamacare policy further shifted expenses and salaries into 4th quarter, yet nominal GDP was still negative for the quarter.
- Electioneering games, particularly in regards to military spending, distorted the third quarter statistics.
- Blatantly dishonest GDP deflators have overstated Real GDP for all of 2012 but especially the second half of the year.
Let's assume I am wrong about recession timing, and Biderman is correct. The initial question remains.
Is Obama to Blame?
The answer is no, not really. If the US was not in recession before and is now, the tipping factor is likely to be 2% payroll tax hikes that started in January and secondarily state tax hikes such as Proposition 30 Tax hikes in California, not specifically Obama's tax-the-wealthy policies.
Certainly Governor Brown and union fearmongering is responsible for the hikes in California.
Who is to blame for the payroll tax hikes? I suggest both parties. There never should have been a cut in the first place with these preposterous budget deficits.
It's not that I am against tax cuts. Rather I am against preposterous budget deficits and both parties are certainly to blame for that.
This does not detract from Biderman's overall analysis, just the finger-pointing about who is to blame.
Ultimately, Fed policies, fractional reserve lending, and Congressional spending are the real culprits in this mess, and I bet if Biderman gave it a second thought, that he would agree (regardless of which of us is correct on timing).
Mike "Mish" Shedlock
So much for 'economic uncertainty', by Steve Benen: In 2009 and 2010, the single most common Republican talking point on economic policy included the word "uncertainty." I did a search of House Speaker John Boehner's (R-Ohio) site for the phrase "economic uncertainty" and found over 500 results, which shows, at a minimum, real message discipline.
The argument was never especially compelling from a substantive perspective. For Boehner and his party, President Obama was causing excessive "uncertainty" -- through regulations, through the threat of tax increases, etc. -- that held the recovery back. Investors were reluctant to invest, businesses were reluctant to hire, traders were reluctant to trade, all because the White House was creating conditions that made it hard for the private sector to plan ahead.
It was a dumb talking point borne of necessity -- Republicans struggled to think of a way to blame Obama for a crisis that began long before the president took office -- but the GOP stuck to it.
That is, Republican used to stick to it. Mysteriously, early in 2011, the "economic uncertainty" pitch slowly faded away without explanation. I have a hunch we know why: Republicans decided to govern through a series of self-imposed crises that have created more deliberate economic uncertainty than any conditions seen in the United States in recent memory. ...
It's hard to count all of the really bad predictions Republicans have made about interest rates, inflation, uncertainty, and so on in their attempt to use the recession to make ideological and political gains. But people still seem to listen.
It's not the uncertainty about what might happen as much as it's policy, what actually has happened -- austerity during a recession -- that's problematic. Now we are about to get more austerity that is ill-timed -- as Ben Bernanke said this week it's far too front-loaded -- and very poorly designed. It was constructed after all to motivate parties to action, so it is intentionally loathsome.
The Fed can be frustrating. Congress, the modern Republican contingent in particular, is ridiculous. It's hurting our ability to recover from the recession and provide jobs for millions of unemployed workers struggling to make ends meet each month.
Wal-Mart Stores Inc (WMT), already struggling to woo shoppers constrained by higher taxes, is “getting worse” at keeping shelves stocked, the retailer’s U.S. chief told executives, according to minutes of an officers’ meeting obtained by Bloomberg News.There's Something Happening Here
“We run out quickly and the new stuff doesn’t come in,” U.S. Chief Executive Officer Bill Simon said, according to the minutes of the Feb. 1 meeting. Simon called “self-inflicted wounds” Wal-Mart’s “biggest risk” and said an executive vice president had been appointed to fix the restocking problem, according to the minutes.
Once a paragon of logistics, the world’s largest retailer has been trying to improve its restocking efforts since at least 2011, hiring consultants to walk the aisles and track whether hundreds of items are available. It even reassigned store greeters to replenish merchandise. The restocking challenge emerged as Wal-Mart was returning more merchandise to shelves and reducing staff in many stores.
Wal-Mart’s inability to keep its shelves stocked coincides with slowing sales growth. Same-store sales in the U.S. for the 13 weeks ending April 26 will be little changed, Simon said in the company’s Feb. 21 earnings call.
In case you missed it, please consider Walmart Senior VP Asks "Where are All the Customers? And Where’s Their Money?"; "February MTD Sales a Total Disaster"
With a tribute to Buffalo Springfield (sorry I cannot find a decent musical video) ...
There's something happening here. What it is, is exactly clear ...
Mike "Mish" Shedlock
Topics: US national debt, US economy;
Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC.
Know Your Fed Chairs, by Tim Duy: Tennessee Senator Bob Corker (R) went on the offensive during the Q&A period of Federal Reserve Chairman Ben Bernanke's Senate testimony this week. A portion of the transcript, via Business Insider:
Sen. Corker: I don't think there's any question that you would be the biggest dove, if you will, since World War II. I think that's something you're rather proud of...Do you all ever talk about the longer term degrading effect of these policies as we try to live for today?
Chairman Bernanke: I think one concern we have is the effect of long term unemployment and the people who haven't had jobs for years. That means they're never going to acquire skills for years and be a productive part of our workforce
You called me a dove. Well maybe in some respects I am but on the other hand my inflation record is the best of any Federal Reserve chairman in the post-war period, or at least one of the best — about 2 percent average inflation...
It is not clear that Corker knows much about the history of inflation since WWII, so I thought a little chart would be handy:
As is clear to anyone who looks at the data, Bernanke does in fact have one of the better records on inflation in the post-WWII period. Is it the best? On the basis of average headline CPI during time as chair, Bernanke looks to come in second behind William McChesney Martin, Jr. Note, however, that it would be reasonable to point out that inflation accelerated during Martin's watch, setting the stage for the high-inflation 1970's. Taking the path of inflation into account, I would tend to argue the Bernanke's record is superior to Martin's.
If we change the focus to headline PCE inflation (quarterly), then Bernanke comes slightly ahead of Martin on averages alone:
Of course, using only inflation averages might not be the best measure on Fed performance. Volcker, for example, had high average inflation rates during his tenure, but inflation declined dramatically. And inflation declined further under Greenspan. Overall, I consider the Chairmen who presided over the 1965 to 1980 period as having the worst records on inflation, while all the Chairman since 1980 have solid inflation records. McCabe is a mixed bag. Clearly inflation was volatile during his tenure, but the Fed was working in the context of the transition out of WWII.
Finally, this whole discussion presupposes that low inflation is always desirable and ignores the fact that the Fed has a dual mandate. Monetary policy is about more than low inflation - it is about stable inflation in the context of the overall economic and financial landscape. Bernanke's battle hasn't even been to contain inflation; his focus has been preventing deflation. But putting these issues aside for the moment, it seems pretty clear that if the only metric that Corker cares about is low inflation, Bernanke has clearly delivered.