END OF YEAR COMMENTARY

by Michael M. Pennington 

COMEX and SILVER DEMAND

The way things look it will soon be impossible - or very difficult and expensive - to obtain physical gold and silver. The first major wave of physical buying has bought up all of the coins and small bar gold and silver available on the market, with the result that if you want any, you must pay a large premium. Right now, the second wave is underway, with astute investors forcing the Comex to deliver, which is having the effect of drawing down their warehouse stocks at a rapid rate. As the Comex is massively leveraged and trades hundreds of times more gold and silver than it has in its possession, it is clear that as soon as their warehouse stocks are depleted, there will be a mad scramble to buy physical gold and silver in order to meet contract obligations. This is just one of the fundamentals which will light the fuse under the Precious Metals moving them up to record prices.

I received a call this morning from a commodities broker who told me that the Comex is alerting various futures firms about the potential of a squeeze on the December contract and is advising the December shorts to exit their positions.  There have been 12,636 notices of delivery. The shorts have until December 31 to make delivery. Normally they deliver early to take in cash and earn the interest. They must be delaying. As I understand the situation, that represents about 40 percent of the gold available at the Comex, and of course someone could enter the scene late, buy February gold, and then spread into December, which would stun the shorts. My broker friend said his back office said this sort of alert is highly unusual and that the concern is real.

FIRST QUARTER STOCK MARKET

Many customers have asked me why I am so negative on the stock market. I think until the full hyperinflation kicks in there are more problems facing the economy. How the new Treasury Secretary and new Administration deals with these problems is unknown. But here are some things they will have to face soon:  1) A second larger wave of residential housing mortgage failures as housing starts and permits are now the lowest in history. Home prices will continue to collapse for the next year or two. (2) The first big wave of auto loan failures and repossessions; (3) Over $40 billion in credit card defaults, smashing the bank lenders; (4) The first wave of commercial mortgage failures and foreclosures on shopping malls, office buildings and other commercials; (5) Joblessness will continue to explode; (6)And finally, the grand smashing finale of CDS Credit Default Swaps originated with no margin money or down payments! They say this amount alone totals $500 trillion! I cannot even fathom that number. These six converging train wrecks could take the Dow from a dead cat bounce of 10400-10800 back to 7250, or even 6600, or 5600.

HOW IS THE “TARP’ PROGRAM WORKING?

The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what’s the plan for the rest? None of the banks provided specific answers.The answers highlight the secrecy surrounding the Troubled Assets Relief Program, which earmarked $700 billion — about the size of the Netherlands’ economy

GMAC GAINS ACCESS TO TARP BY CHANGING TO A “BANK”This simply gets more ridiculous every day. GMAC was 3 days away from filing Bankruptcy. Falling under the category “too big to fail”, Congress approved including GMAC into the government bailout. Once again, the players responsible for unethical business practices are rewarded for their irresponsibility. Now we have the Retailers asking Congress for a bailout because the holiday shopping season was lousy. Every large corporation is receiving taxpayer funds to repeat their errors of the past two decades. Where will that leave us in the future?

FORMER FED RESERVE GOVERNOR PREDICTS GOLD BE REVALUED MUCH HIGHER

News Network in Canada, former Federal Reserve Governor Lyle Gramley hinted that a big upward revaluation of gold may figure heavily in the Fed’s attempt to rescue the U.S. economy.The program’s guest host, Niall Ferguson, an author and history professor at Harvard, asked Gramley, now senior adviser at Stanford Group in Houston, about the seemingly grotesque expansion of the Fed’s balance sheet in recent months.Ferguson asked: “I’ve heard it said that the Fed has turned into a government-owned hedge fund, leveraged at 50 to 1. Do you feel nervous about what this might actually do to the Fed’s reputation?”Gramley replied: “I think you have to reckon with the fact that one of the Fed’s assets is gold certificates, which are priced, as I remember, at $42 an ounce, and if we were to price them at market prices, the Fed’s leverage would look a lot less than it is now.”While valuing the U.S. government’s claimed gold reserves at today’s Comex closing price of around $822 per ounce instead of the government antique bookkeeping entry of $42.22 per ounce would indeed vastly expand the government’s monetary assets, it might not be enough to offset the liabilities and guarantees the government lately has taken on. But the job might be done by revaluing the gold to $5,000 or $10,000 per ounce, as the British economist Peter Millar speculated two years ago might be necessary to prevent debt deflation:

THOUGHTS ON GOLD AND SILVER PRICES

Make no mistake that we are seeing the early signs of a gold rush like the world has never seen before. Investors do not take physical delivery of gold to sell it back for a 10 percent profit. The inflation-adjusted high of gold in 1980 is $2,500 today. But today we are in the midst of an unprecedented global financial crisis. Simultaneously every country is hell-bent on currency destruction as an antidote to too much debt creation. What is gold worth in such a scenario? Who knows? But it is certainly multiples of where it is now. The precious metals that are being taken off the market will not see the light of day again for a long time. The central banks have almost stopped selling gold and mine supply is dropping year after year. Gold and silver are selling for almost their cost of production, so the downside is severely limited because no commodity can trade below its cost of production for very long because producers go out of business, thereby reducing supply, which increases the price. Investors should take physical delivery and not be leveraged. This way you will make sure you are around for the payday and you will put more pressure on the shorts who have fraudulently sold gold and silver that they are unable to deliver. Whether there is a massive squeeze on the Comex in December or February is irrelevant. The gold rush is on. When gold and silver become unavailable, prices will have to go up by multiples.  

WHAT A DIFFERENCE A YEAR MAKESJust more than 1 year ago Royal Bank of Scotland (RBS) paid $100bn for ABN Amro (80% cash).

ENGINEERING THE COLLAPSE

I’ve said on several occasions that that this collapse was planned. There is no doubt Greenspan wanted to go out a hero and pass the mess onto his successor Bernanke who interestingly enough, studied the Depression of the 20’s for his Thesis. So far, everything can be explained. What is an absolute lie though is Greenspan and Paulson’s belief that they did not see this coming. Greenspan refused to regulate Hedge Funds and fought against it while his insider buddies sucked the Global Market dry. This  created a Global Power Elite and placed unheard of Wealth in a few hands before the whole thing began to collapse this year. What’s my take? They knew they couldn’t keep the charade going much longer. They knew it would collapse and Greenspan would give his insiders the Gift of Trillions by having virtually no accountability of Hedge Funds. Coupled with easy money and the use of criminal derivatives they knew it would  blow up in their faces. They scared the public into the bank bailout by dropping the Stock Market (Bernanke drained liquidity when the Bailout didn’t pass Congress) with no accountability to the tune of trillions. It’s been the greatest bank heist in the history of the World. What they do have control over is the speed of the collapse which I believe is being engineered as a slow demolition. The Frog is being boiled slowly. I also believe they will use the collapse to bring in the next stage of their plan whatever that might be. The timing might be 2-4 years. They have some control over the rate of collapse. They clearly knew it was coming and so they most assuredly have a plan for what comes next.

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