Tail Events, Isolation, New Normal

by Jim Willie CB
January 26, 2012

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The year 2012 has started out in strange ways. While celestial forces augur for rare tail events, the assurance of man-made events that stretch far into the extreme tail of probability are not only very likely but will be of a type to reflect the change in the global balance of financial power. The Paradigm Shift mentioned over the course of the last two to three years is at work, having moved into a higher gear. The gold is moving from the West to the East, along with the power. We will not see the process reverse in our lifetime. The sanctions set against Iran have been devised by a former global leader nation that is beset by insolvency, fraud, and lost integrity. The backfire has consolidated forces into a more fortified position against the USDollar. Trade increasingly is not being settled in US$ terms. The icons of the day are mere apologist public address systems attempting to rationalize and justify the deep insolvency and wrecked systems. The new normal is of a caravan file of broken cars and trucks sputtering down the road, using the false fuel of hyper monetary inflation and the offensive paint of phony financial accounting, the tell-tale sign being the ugly rancid smoke out of their tailpipes. The last insult is of the US Presidential election process, which is badly marred by obvious inconsistencies and anomalies. The vote count for the candidate that attracts the biggest crowds, attracts the biggest donations from corporations, and defies the financially teetering system does not match the final official tallies.

PREPARE FOR RARE DAMAGE OF TAIL EVENTS
In the probability world, a tail event is described as an occurrence far out in the small numbers of probability, extended on the tail of the curve of likelihood. In the quality control domain, the battle cry used to be Six Sigma, meaning the tolerated defect rate goal would be six standard errors, a rate in no way achievable. A quick check of the probability tables unmasks the lofty goal as one defect part off the assembly line in every 1.013 billion items. That is Six Sigma on the normal bell-shaped curve. However, in the world of phony finagled finance, such rare events are indeed occurring. The modern world has never seen such grotesque charred ramparts posing as financial structures, badly beset by the insolvency caused by the natural sequence of broken asset bubbles, aggravated by absent industry. In fact, the entire fiat currency system, where money is nothing but redefined debt, is an abomination destined for the ruin we see on such a tragic widespread level. The modern world has never seen such grotesque housing disasters, the dream of home ownership turned upside down, one quarter of American households owing more than the value of their homes. In fact, the entire housing dependence devised by Greenspan, where the USEconomy would lean not on industry but on rising home equity, serves as the calling card of central bank heresy. The heresy continues with the high priest ZIRP and bishop QE. Of course it ended in tears. The modern world has never seen such grotesque quicksand in sovereign debt for so many major nations. This goes far beyond Greece, Ireland, and Portugal, the symbols of small fry nations that few nations will make deep sacrifice for. In fact, as the sovereign debt spreads, it has become clear that Italy, Spain, France, and many other nations suffer from the sinking pressures that national securitized debt brings. As the sovereign debt loses value, the banking system sheds reserves valuation and goes insolvent, the credit engines stall, the economy falls into recession, the labor force loses jobs, the spending patterns falter, and the nation goes into a failure mode. See the Cauchy distribution in the graphic, which when the degrees of freedom grow unbounded, approaches the Gaussian normal.

Some important tail events of rare type are coming. Any attempts to control a Greek Govt Bond default will be fraught with high risk and deep peril. The equal necessity to control a default for Ireland and Portugal will be made obvious. The extension to Italian and Spanish Govt Bond losses in collateral damage will be obvious. The implications to Credit Default Swaps must also be handled, not possible in the same fraudulent manner as before with redefinitions and denied insurance awards. The contagion of vanished equity in the banking system will spread to London, New York, and Germany, in whose nations numerous banks will fail. It will be extremely difficult for the USDollar to ward off such powerful storm damage, and remain as the global reserve currency. Some distant maritime voices might regard my claims as premature and far-fetched, but their preoccupation with gold basis has left their voices mere reverberant richochets in the hinterland. The academic voices seem out of touch with trends, the loud laps on the rocks from waves of inflation hardly recognized for their damage from the remote seacoast. They seem unable to foresee the new found land that is forming in the East, divorced from the USDollar.

IRAN SANCTIONS BACKFIRE INTO ISOLATION
In the last two weekly articles, the backfire was described regarding Iran sanctions, the response from the emerging economies, and the harmful effects of foreign nations grappling with defense from the uncontrollable unbridled unending printing of phony money. The USGovt actions have galvanized a response, led not by Iran but by China. The raft of bilateral accords juiced by currency swap agreements has provided a significant buoyancy in the global trade framework, a highly complex system. It dictates the flow of USDollars in obvious ways, but it also dictates the formation of reserve banking systems in more subtle ways. In 2007, when Brazil and China announced a swap facility to bypass the USDollar in trade settlement, the Jackass took notice like a prairie dog raising his head with erect spine. In 2010, when Russia and China announced a swap facility to bypass the USDollar in trade settlement, the Jackass took notice again. The big trade winds were changing direction. The extreme importance of trade and banking interwoven should not be overlooked, as often done by the clueless cast of US economists. So when in the last month, Japan and China announced a swap facility to bypass the USDollar in trade settlement, the Jackass concluded that the end was near for the waterlogged American financial fortress. These are two primary Asian powerhouses, who with South Korea form the core strength of the entire East.

The USDollar might not be attacked on several front with harsh assaults so much as it will be relegated into irrelevance, as the USDollar will be ignored and left to defend itself in the open fields where wolves and dragons roam wild. Note the parallel to the COMEX, which as a market will also be relegated into irrelevance, as the precious metals will be traded elsewhere, in markets where private accounts are not stolen. Entire Compliance Departments have forbidden usage of the COMEX as of January, due to outlaws overrunning the floors. As the USEconomy is isolated, it will be compelled to bid up whatever foreign currency is required to purchase commodities and finished products. In reaction, the USDollar will fall in value.

In April 2010, a conference took place in the United Arab Emirates among a couple hundred billionaires, sheiks, and other royalty. They decided to embrace the Chinese Protectorate plan for the Persian Gulf, and to accept Russian oversight in the region. Without the Asian offset to the American aggression, no stability is remotely achievable. That event served as a clear signal that the sunset shadows for the USDollar were soon to encounter reality. The process would clearly require a couple years, but the writing was on the wall. Much critical structural work would be required to complete, as trade, banking, currency, and gold management has become far more complex and integrated for the array of professors to comprehend. Not sure such developments are detectable in the maritimes, especially in academic outhouses or local taverns. Furthermore, the actual Dollar Kill Switch had to be devised, with confirmed connection to the OPEC oil trade. My source has informed me that the switch is finally in place and ready. Recent events show the East walking toward the switch. The numerous defiant gestures by China, Iran, Russia, India, and Japan paint the billboard in big bold letters. The workaround of the USDollar is moving fast apace. A confirmation occurred just last week when the Saudis and Chinese announced a joint project for a refinery to be built on the Red Sea. The Saudis in effect were tipping their hat to the Chinese, and again were turning their backs on the Untied States. The signals are abundantly clear. What we are witnessing is the end of the Petro-Dollar in slow steps. The steps are unmistakable to those who study the interwoven nature of global finance. They are easily overlooked by those who operate within the dome of perceptions controlled by the American apparatus, and are locked in mental gibberish ensconced in gold basis. The crowning blow might have been announced this week, as India will pay for Iranian oil in gold bullion. The news invites many questions. Apparently, the Turkish intermediary will not be needed. Gold for oil sounds like a historical point in time.

Backfire extends to Europe, where the absence of Iranian oil supply will cause some extreme problems. The shortages are soon to be acute, word coming from a German source with great contacts in the middle of the mix. He wrote this morning, “The Persians are cutting off oil shipments to Europe, effective immediately, which will kill Greece, Italy, and the other Club Med deadbeats. The West with their sanctions led by the Americans screwed itself royally. The Asians and others are dis-engaging from the Western banks as fast as they can. Expect to see more wild fluctuations in the Gold and Silver prices continue. Until this week, the Gold forces did not know how weak the Anglos already are. They have hardly any firepower left.” Difficult decisions will be made toward the USGovt leadership. It is shaky. It is lacking integrity. The nation is smeared by the splatter of fraud. Its markets are propped by the heavy hand of daily interventions. Its economic data is laughed at as a fantasy. Its elite are given huge grants without global approval. Its central bank makes decisions unilaterally, without conferring with USGovt creditors. The foreign anger is ripe. The motive to seek alternatives is at high pitch. Big changes are in progress, pushed along ironically by the USGovt itself. If their spokesmen insists on the many major global trade participants to take sides, the crew in WashingtonDC might be in for a shock, colored by isolation. The real loser will eventually be the USDollar, whose Petro-Dollar defacto standard is being washed away by central bank liquidity and leadership arrogance. The US financial body resembles a pig adorned with lipstick with each passing day.

NEW NORMAL OF HYPER MONETARY INFLATION
It is hard to describe fully the lost ways of the US Federal Reserve. The phrase New Normal is a transparent attempt by financial icons in the private sector to put a face of legitimacy on a system bound in the USDollar and its heavy handed management, reinforced by a daisy chain of $trillion frauds. Such cannot be done. The term was coined by Mohamed El-Erian, from the PIMCO helm. Bond fraud followed by TARP Fund fraud, followed by Financial Accounting fraud, followed by Mortgage Contract fraud, followed by unauthorized multi-$trillion fraudulent grants by the USFed, followed by the grand sequence Quantitative Easing to wash value out of the USDollar, followed by the unilateral undercut to USGovt creditors, followed by more unilateral decisions to sanction Iran for nuclear weapon development that even Defense Secretary Leon Panetta admits is not a reality, well, does not make for global leadership. It makes for a travesty. Yesterday the USFed released more directives. So the USEconomy is stuck in a weak reverse gear. The accommodation will extend until year 2014. These guys are basic liars. Even Bill Gross of PIMCO takes shots at the central bank policy or ruin. The United States will suffer financial repression (in Gross’s words) if the Federal Reserve implements additional bond monetization as policy. The USFed will hold its benchmark interest rate at near 0% for at least the next three years, as a testament to central bank failure. No departure from the 0% rate can be done. The USGovt debt service requires it, demands it, and will default without it. The ZIRP and QE are worn as badges of failure and dishonor.

Remember the Green Shoots of USEconomic recovery in 2009? The Jackass dismissed it as nonsense. Remember the Exit Strategy later in 2009? The Jackass dismissed it as nonsense. Remember 0% was for just six to nine months, an emergency policy? The Jackass dismissed it as nonsense. Remember how Quantitative Easing was to be temporary in 2010? The Jackass dismissed it as nonsense. Remember how the 0% accommodation was to last until 2013, announced early this year? The Jackass dismissed it as nonsense. It is all the stuff of cows and bulls propelled from hind quarters, piling on the meadow in lumpen form. Tragically, the reality is more simple. The 0% rate (ZIRP) and the heavy hand of monetized bond purchase (QE) are permanent or else the system falls apart and collapses. Such an admission would send the USDollar, the Euro, and all major sovereign bonds to the woodshed for processing in a pit filled with excrement, where they will ultimately end up. The tragic fact from the world of economics, is that 0% and bond purchase kills capital, diminishes the economy, puts business asunder, ruins jobs, and causes federal deficits to grow. They are not stimulus, but rather financial formaldehyde.

GOLD & SILVER READY FINALLY TO RUN
For the last several weeks, a theme was mentioned numerous times, that the 1650 level would be defended. It would be defended not just vigorously, but almost to the death. Enormous naked short positions are in place between 1625 and 1650, put by the gold cartel. They might be in the process of being overrun. My sources inform that in November an important team was assembled, and funded to the hilt, with a mission to trample the gold cartel, to cause a failure in their attempts to deploy naked shorting in price suppression, to force them to cover their huge short positions in retreat, to oblige outsized drainage of the COMEX, to even induce them into draining the GLD exchange traded fund of its inventory from the backdoor. The team was from the East, and not necessarily only from China. They are determined. They are motivated. They are wealthy. They are angry. They want an end to Dollar Hegemony. They see the Untied States as both weak and corrupt in visible manner. The time is now. The Iran grappling hooks seem not to find the fleshy matter of the allied fortress walls. They have been tossed aside, while new alliances form in defiance.

The US & London tagteam seems not to properly assess their adversary. These bankers who parrot the English language (but hail from fascist roots) are not the beneficent lords that they used to be. They have become syndicate captains and leaders. The events of the last few years have demonstrated allegiance to the elite and contempt for the masses. The nationalized financial firms are kept under foot so that the fraud is not exposed. One would shudder to see the toxic paper mixed among bond fraud and outright counterfeit, housed safely under USGovt roof. See Fannie Mae and AIG. The mantra of Too Big to Fail is an epitaph, not a call to remedy. The chief stanchions of toxicity and fraud are Bank of America, which would fail without the money laundering lifeline. So it is rescued in generous offerings.

The USDollar ship of sea is adrift, soon a derelict vessel. The signs are clear. The sovereign debt system that serves as foundation is a rotting corpse. The East is working feverishly to build the alternative system. Look for barter to be its backbone. By the Ides of March, it should be more clear. Any controlled demolition of PIIGS debt and bond writedowns will make for quite the event to watch. The upcoming funding needs of Italy are an order of magnitude greater than the bond market or the Euro Central Bank can manage. The game breaker events are nigh. Just this week, India and Iran announced settlement of oil trade in gold bullion. The workaround seems unique and novel, but with historical precedent. Before the USGovt unilaterally broke the Bretton Woods Accord that established the Dollar Gold Standard, settlement in gold was the norm. The world might be soon coming full circle.

The US-based silver production in October 2011 was 30% below the same month in 2010. It went from 117 metric tons to 81.4 metric tons. In contrast, the American Eagle silver coin production is on a strong upward course since 2007. The current US silver demand is 117% of the current domestic production level, in deficit. The USMint will have to import silver. They can always shut down, or impose a vacation, or ship steel coins clad in silver. If it works for tungsten and gold, it might work for steel and silver. Be sure to know that like with gold, the newly assembled Eastern team is at work in the silver market. Their objective is to cause a failure in the cartel attempts to deploy naked shorting in price suppression, to force them to cover their huge short positions in retreat, to oblige outsized drainage of the COMEX, to even induce them into draining the SLV exchange traded fund of its inventory from the backdoor. The method is simple, coming from illicit (but not illegal) shorting of the shares.

CONTROLLED U.S. PRESIDENTIAL ELECTION
The clues are clear but only to the alert observers. In year 2000, for the first time a gross inconsistency showed itself as an anomaly. The exit polls in Florida and Ohio did not match the election results at the local level. For a full generation, the correlation had been over 90%, as it should be, since people exiting a voting center reveal their votes with consistency. This is the left hand and the right hand coinciding genetically with the same human standing before the clipboard recording the exit poll. The lapdog subservient US press reported the anomaly as people changing their minds, or not admitting to the clipboard their actual voting preference. Numerous statistical studies showed the anomalies in colored form, to expose Florida and Ohio for its voting system fraud. Yet another blatant fraud has infected the American landscape. This is a far cry from legions of dead people rallying to vote for Kennedy in Chicago during the 1960 election, with the forces marshalled by Mayor Daley. History has repeated, as 1000 dead people voted in the South Carolina primary in one city alone. My guess is the dead people voted for Gingrich. The season started in Iowa, where Ron Paul had a nice steady lead for the few weeks leading into the caucus. Then suddenly Santorum came out of nowhere to share the win with Romney. Paul finished a lowly third. The Santorum crowds were small except for his victory speech. Could it be that the outsourced vote count took 10% to 12% of the Paul vote and put it in the Santorum bin? Then in New Hampshire, where vote fraud is much more difficult due to hand counted ballots, a reality check came. Santorum finished way down the line. Move on to South Carolina, where again Ron Paul shared the lead position in the polls. But on the primary day, again Paul finished again a lowly third. We are told Gingrich won, and justified by having his home state so nearby. Yet Gingrich had to cancel a couple campaign stops due to lack of attendance. Ooops! Could it be that the outsourced vote count took 10% to 12% of the Paul vote and put it in the Gingrich bin?

In a recent article, the Jackass remarked that the US presidential election process was another controlled process subject to outsourcing. The patterns of software changing votes by Diebold loyalists have matured into bolder block changes without transparency, but such thoughts might be entirely errant. The blatant maneuvering of voting process fraud will be more clear by the November confrontation. My contacts back in the states include an Afro-American lady with a big base of black business contacts. They do not favor Obama anymore, wondering aloud who he is and what benefits ever came to the black community. Busloads of urban votes from the Acorn tree might not be able to conceal what comes in the fraudulent process. Heck, vote rigging is just one more Third World characteristic, hardly unexpected. My thought in December 2008 was that Obama would fill two important cabinet positions, the rest did not matter in my view. My forecast was for Goldman Sachs to occupy the Treasury Secretary post, and for Gates to continue as Secy Defense. Control of the USDollar and US Banks was too vital to put in the hands of somebody who required on the job training. Control of the military projects was also too vital to put in civilian hands, including the critical wealth generation out of Afghanistan, whose sticky product had clearing house function in the Iraq Export Bank in Baghdad (run by JPMorgan), with lines feeding Wall Street for their cut. Both forecasts turned true. The other cabinet appointments meant little. The Secretary of State has become an important attack dog, to be sure.

Good riddance to Geithner. Timmy the Tool is nothing but a mechanic, a diminutive figure from the Wall Street club, nothing in stature like his predecessor Paulson. If truth be told, the Chinese probably ordered him out of office, after far too many ridiculous meetings on Beijing soil. Timmy’s battle cry of currency manipulation had grown tiresome. The laughter given him by university students two years ago was too much to stomach, when he claimed the US financial structures were strong and sound. Let’s watch to see if the next Treasury Secretary is of Goldman Sachs pedigree. Its firm death grip on American bank rule has been evident since Rubin in 1994. Few seem to realize it is all downhill toward ruin since that fox took control of the American henhouse, jumping the pond from the London Gold desk of Goldman Sachs. The eggs are gone and the hens are sterile. All that is left is cartel droppings.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Gold Projections 1/26/12

The primary purpose for buying gold or silver is for preservation, protection and profit as well as survival from the destruction of paper money. It’s just that simple.

Under the current financial circumstances, increases in the price of gold and silver will be significant and substantial over time.

However, common sense dictates one should restrict new purchases to after retracements, not after $200 gold price advances.

Strategic Play
Currently, we have just experienced a $200 advance in gold an a $7 increase in silver. Strategically, this is where one should be taking some money off the table, not initiating new bullion positions.
You will find many predictions elsewhere on how high gold or silver will ultimately go with some really outrageous numbers being offered. The projections may be true but they are still several years down the road.

You will not find blue sky predictions here only clear, credible and convincing evidence. Improvements in the gold price are always in steps and considerable patience needs to be exercised while waiting for the next surge or price achievement to occur.

Future Outlook
It can be said that unless this Titanic financial boat changes course radically and immediately, the weight of the evidence, risk/reward ratios and program projections does suggest a new all time high in gold and silver prices later this year.

Additional supporting evidence and nuggets of value are described here.

Dr. Jeff Lewis Interviews Grant Williams : Outlook for 2012 and Keeping Your Emotions Away From Your Silver

If you’d like to listen to the interview, please go to Grant Williams site here.

Grant Williams is portfolio manager and strategist for Vulpes Investment Management in Singapore – a hedge fund running $200million of largely partners’ capital across multiple strategies. In 2012, all Vulpes funds will be opened to outside investors. Grant has 26 years of experience in finance on the Asian, Australian, European and US markets and has held senior positions at several international investment houses. Grant also writes the popular investment blog ‘Things That Make You Go Hmmm…..’ which is available to subscribers. For more information on Vulpes please visit About Vulpes | Vulpes Investment

Transcript

Hi everyone, it’s Dr. Jeff Lewis here with Silvercoininvestor.com and Lewis and Mariani Publishing. I just wanted to wish everyone a Happy New Year and we thought we’d share an interview that I just recorded with Grant Williams the author of the newsletter that I love, it’s called Things That Make You Go Hmmm and I hope you enjoy. Take care, and again Happy and healthy New Year to all.

Dr. Jeff Lewis: It’s my sincere pleasure to speak with Grant Williams, author of the weekly newsletter “Things That Make You Go Hmmm…” Grant is coming to us from Singapore. He produces this entertaining, informative, very clever and down to earth view of current events from the perspective of someone who not only demonstrates a clear passion for history and a knack for weaving the past into the present, but he has also been an active participant in financial markets for quite some time now. We’ve spoken about this in the past, but perhaps you could give listeners some background on now how what I consider to be this somewhat underground newsletter evolved?

Grant Williams: It’s been something I’ve been putting together for two or three years now initially to a small group of friends and some clients out here in Asia. It’s just kind of grown in popularity and it’s grown in scope as well. It started off as a one-page report put out to people everyday just with a few things that I thought they ought at least be aware of and that they wouldn’t probably find on the front page of cnn.com or the BBC News website, these are things that I thought would have a potentially material impact on markets and finance but they weren’t necessarily in the mainstream. As it’s grown, it’s now, I guess in some weeks it can get up to 25, 30 pages long; including a collection of snippets of these articles we’re doing to the full piece for people to check out themselves and read.

All we’re really trying to do is provide a broader view, as I say, some issues that from both a macro and a micro-perspective that are probably a little bit more important than what one would think if you find where exactly on the totem pole they’ll appear. So, it’s really, that was the genesis of it. It’s something that I sit and do a lot of reading, a lot of thinking about this stuff and so it actually helps me to put this stuff down on paper; it helps clarify your thoughts and get some perspective around them. So that’s really how the whole thing came about.

Dr. Jeff Lewis: Great, well thanks for that. I certainly have been a big fan and listeners should rest-assured that I will provide some information on how people can find a copy.

Sign up for your Free copy of Things That Make You Go Hmmm…here

In the current issue of Things That Make You Go Hmmm you’ve used an interesting literary device as a way of predicting what we might see in the coming year. Maybe you could tell us a bit about why you chose that approach which by the way, it prophesies among other things the possibility of two resignations. One, Obama withdrawing from the Democratic ticket and, perhaps more shocking or more pertinent for those of us with the particular interest in silver, the resignation of CFTC commissioner Bart Chilton in protest of inaction on the part of the CFTC. But Grant, how serious are things getting out there? Do you think that 2012 contains enough road left for the proverbial can to be kicked?

Grant Williams:

Well, you know, this metaphor of kicking a can down the road has become – it’s just become ubiquitous in the last year or so; in the last couple of years. It really is, at very root of it, that’s what’s going on. We all know what the problems are. The problems are basically too much debt, too much spending and governments the world over are living on borrowed time but they’ve managed to put band-aides over wounds and keep the game going for this long and they will try and do that for as long as possible in the vain hope that they can find some organic way to grow their way out their problems. But realistically that’s not going to happen. As tumultuous as 2011 has been, you know, we took Europe and the Middle East and downgrades for the U.S. and all kinds of upheaval. We haven’t really had any resolution to any of those events. The European situation still goes, the Middle East is an absolute powder keg and getting worse with the fact that the U.S. has no withdrawn from Iraq or in the process of doing so and Iran are agitating for trouble.

So I suspect that 2012 could bring about resolution for some or several of those events that began in 2010, 2011 and with that resolution I suspect will come some real upheaval. A lot of people sit down at the end of the year and write their predictions for the year. It’s a fool’s errand really because we all sit in this because you have to kind of do a little thinking about how you see things playing out and sometimes to verbalize that it just puts a tiger on your back. While I tend to read people’s predictions for the year and I’ll evaluate what they see as possible outcomes through my own filters, I’m never going to hold someone to a prediction they made about what might happen in the future, I mean it’s crazy. But people do, it’s amazing what you’ll see, people get their feet held to the flames because they made a wrong guess about you know, the price of gold this year. Nobody has a crystal ball so I just figured when I wrote my piece I would kind of do it as a backward-looking piece of work that was to be published on the first of January next year just to kind of bring a little bit of levity to it and just try and make it less serious in other people’s eyes more than mine. All the things I discuss in there I think are real if not distinct possibilities and it’s just a question of sitting down and thinking about what potentially could happen next year in order to give yourself a fair chance to try and deal with them if and when they do arise.

Dr. Jeff Lewis: Yeah, I think it was very effective; it definitely opened my mind to some interesting possibilities. Speaking of silver and manipulation let’s say, we could probably leave out the actual mechanisms for how the recent raid on prices got underway and perhaps maybe focus on the price of silver and where it could be headed in light of this, I’m sure you’ve seen, this dramatic rearrangement of positions as they are reported in the most recent commitment of Trader’s Report. Many, including Ted Butler of Butler Research and Gene Arensberg of the Got Gold Report has done some work and pointed out that there’s this extremely rare situation that’s evolved. The fact that you have these large commercial traders or the bullion banks who have been able wield so much power over the price mechanism, they seem to have significantly reduced the size of their influence perhaps, in fact may have repositioned themselves – or it looks as if they’ve repositioned themselves for the long side. The question is how does this strike you, do you think it’s a signal that – in other words are we reading too much into this or is it a signal that large traders actually may know something or is it simply a result of having washed out so many long or weak speculators?

Grant Williams: I think the silver market is such a crazy place to be and we see some real violent moves. It’s important to try and keep a sense of balance because the way things trade, particularly in silver, it’s easy to get fixated upon an idea and to blame every move on that particular idea. In the case of silver, the big theory about silver is the manipulation of the COMEX futures.
Now, I’ve written a lot about this in the past. I definitely think there’s no smoke without a fire. It’s a dangerous game to sort of ascribe every single move in an instrument to a construct that has yet to be proven beyond any doubt. While I suspect there is definitely something untoward going on the silver futures as Bart Chilton has intimated in his comments this past year. I think it’s a very dangerous game to not have a balance, to just simply look at the way markets behave, look at the extraneous events that may have an effect and cause the de-leveraging or liquidation and to try and get a more rounded picture of why something moves now.

If you look on an intra day basis, some of the very sharp downdrafts in silver and gold in the past 60 days; they generally tend to have an overnight in quiet markets and it’s clear that the selling is not, shall we say, someone looking to maximize their profit. I mean these things fall in vacuums in very aggressive fashion. So it’s clear that people are trying to shake out weak holders and that’s happened. We’ve had some major falls in both precious metals, silver actually ended up being down on the year in 2011 which is any of us would have predicted that when we saw it top 50 bucks earlier this year. But I think the set up has changed dramatically and I think you will find that we are left with an awful lot of strong hands holding silver now. I’m here in Asia, the futures price is really more of an irrelevancy. Over here it’s all about physical metal both in gold and silver and so we see a lot of buying of physical metals here in Asia when the price comes down on the COMEX and we see premiums expand because it’s very tough to get delivery. I suspect going into 2012, the set up for both precious metals is bullish providing they can hold these levels and I think that is important to know. A lot of very good and well-respected chartists worry that gold could correct to 1,200 to 1,400 bucks. And certainly, if you look at the technical pictures, that could happen. Silver could correct down to the low-20s; it absolutely could happen. But it’s important to decide whether you’re a trader or whether you’re an investor. If you’re investing in silver and you’re investing in gold, based on the fundamental reasons to do so, then falls to the price aren’t that much of a problem for you because they give an opportunity to buy more metal at cheaper prices. If you’re a trader, it’s a whole different world and you have to be very agile and you have to be very attuned to moves like this that could go significantly lower. To be a trader in something like silver, it’s a really dangerous thing to have an emotional attachment to the metal or to the idea that there might be manipulation because you’ll find yourself fighting the tape every single day and that’s a certain way to lose money.

Dr. Jeff Lewis: Thanks for the words of wisdom; that’s very important to keep in mind. As a way of pulling all this together for our listeners, in the past we’ve had a couple of emails about the importance of what you allude to; investment demand versus the industrial demand for the metal. You point out that in Asia or in other places too that as soon as the price comes down you see a lot of investment demand return. What do you consider to be the most important long term fundamentals underlying precious metals, silver perhaps or in particular, things that those of us who have a tendency to get hung up with the short term or watch too closely perhaps the technical analysis? With things that may not be revealed today or in the next week, but most definitely lay beneath the surface, sort of an overview – what do you think are the most important fundamentals?

Grant Williams: The supply-demand picture is always at the base of any commodity. With silver and with gold, you’re looking at between two and four percent annual supply increase every year and obviously that’s getting more expensive. Even gold and silver has long since been found and extractived. So yeah, you’re bringing on between two and four percent of new supply every year. Silver, if you look at – a lot of people make a big deal about the slack in demand for silver in photographic film, and yes, historically that’s been a very, very big proportion of the usage of silver. But there are so many uses for silver now in nanotechnology and healthcare and particularly solar. In photovoltaic, for example, ten years ago that industry used less than 2 million ounces of silver. In 2010 it was up to about 50 million I think. By 2015, they’re talking about 100 million ounces to be used in solar photovoltaic cells alone. So there are all kinds of new technologies that are defining ways to use silver and I suspect, whether its thermal properties, its conductivity properties; it’s such a useful metal and it does everything that copper does better than copper; it’s just more expensive. People are going to find new uses for silver, that goes without question and if those uses expand at a rate greater than the supply and demand with its supply side, which is I said, between two and four percent a year then you are going to see higher prices. That’s a given.

Dr. Jeff Lewis: Just to add to that, do you think that the macro conditions, like the monetary problems or will feed that frenzy where investment demand might actually trump – some argue that industrial demand could fall and serious deflationary crisis for example, I mean you’re alluding to the fact that silver is used in so many things that surely it’s not going to fall completely, but in that situation and in an environment where there’s more easing or printing, do you think that we could see a much greater, robust awakening in terms of investment demand? We’ve already seen that, but could you imagine it increasing?

Grant Williams: The funny thing is, gold and silver as monetary metals are forever linked in everybody’s minds and they’ve always been so. But what you tend to see is silver tends to have its best spurts in performance when gold gets carried away and people just can’t afford to buy gold. So if somebody’s looking at investing in gold, we saw it when it went through 1,600 bucks, you know, all of a sudden silver had a big, big surge because at the margin, if someone’s about to spend $1,500 on an ounce of gold and the price suddenly goes to 1,600 bucks, he’s priced out that ounce of gold. So you see some of that demand come into silver because he says, well hey, I can buy an awful lot more silver with my 1,500 bucks, now I can’t buy an ounce of gold. We saw the same thing when gold was pushing up through 1,700–1,800 this year, you know, there was a lot of demand for silver and that will happen again. I think the Fed will come pretty hard with QE3 and maybe QE4 next year. I think Europe is already monetizing despite what the Germans are saying, despite what the ECB is saying, if you look at their balance sheet it’s pretty much doubled, so they are clearly printing money at will. The U.K. are doing it very conspicuously. The Swiss National Bank are also printing money to try and weaken the Swiss franc, so there’s an enormous amount of money creation going on and that is always bullish for gold and silver. We’re at a point now at the end of this year where there’s a mad scramble for cash and people are selling what they can sell. I think a lot of that downdraft we saw in both gold and silver going into year end, was just people who are having to raise cash and selling the thing that they had a little bit of profit built into.

Now, once they start going down, the shorts are going to press that; and so these falls get a lot more vicious than perhaps they would be in just an orderly market where people were looking to sell a bit of precious metals to raise some cash for year end. But as I say, you have to try and take your emotions out of this thing. And I’ve been actually surprised in the last couple of weeks to see some long term committed gold and silver bulls questioning their rationale, which is the first time I’ve heard it from some of these guys. I take that as a very, very bullish thing because whenever you buy gold or you buy silver, your emotions always cloud your judgment and so if you can find some way to deal against your emotions, generally that always going to work out pretty well for you. They always talk about the Rothchild’s quote about “buy when there’s blood in the streets” and people like Warren Buffet saying “I buy when people are selling and I sell when people are buying.” That really is the way to make money in the long term. The perfect example is the HUI, the HUI index this year. If you’d have bought that at 500 and stole it at 600, then three separate times this year you would have made 20% and that’s purely a function of the swift moves in both directions where emotions take hold in the precious metals. So you have to really take a step back and try not to let the emotion of these particular instruments cloud your judgment.

Dr. Jeff Lewis: Grant, thank you for those words of wisdom and I hope that you have a great happy and healthy New Year and thanks again for taking the time to speak with us and listeners. I will be sure to include a copy your most recent issue of “Things That Make You Go Hmm…” Grant Williams, author and editor of Things That Make You Go Hmm. Thanks again.

Grant Williams: It’s a pleasure and Happy New Year.