Signs of a Top?


(Guest post by GM Jenkins)

Brian O'Flanagan is a smart and humble guy (i.e. not an anti-metals a-hole), who easily got the better of SGS in their recent dust-up (SGS may very well be right, but is he bright? One wonders why he's so inept at defending his positions in a civilized manner). O'Flanagan calls this video from CNBC the "sign of a top."














O'Flanagan:
"If you’ve ever been to a coin show you’d know how strange it would be to see a CNBC camera crew there. The average age is about 75 and most of the people there are sitting with their magnifying glasses arguing about whether a Lincoln cent is an AU58 or MS60. Not quite a party atmosphere, yet CNBC felt the need to send a reporter to do something, anything, to appease their viewers demanding coverage of the hottest investment of the era: silver. If this isn’t a sign of a top, I don’t know what is."

Now, very likely we're approaching a short-term top here, although even a 10% correction would barely take silver below $40/oz. So, by "top" I believe O'Flanagan (and others who talk disparagingly of the silver bubble) mean some kind of a waterfall collapse is in the works, perhaps taking silver back down into the twenties or even overshooting into the teens.

While that's possible, I don't think O'Flanagan's two CNBC videos support his position at all: I sensed no mania whatsoever in either video; the voices of the commentators exuded skepticism and at times a gay incredulity, with even the coin dealer interviewed using the word "bubble" unflinchingly and without equivocation. The fundamental reasons for buying bullion weren't explicated, but rather confounded with the qualitatively different reasons for buying rare coins. The apparent consensus at the coin show was that gold could eventually hit a very tame $1800/oz. No talk of "gold to the moon," of "paradigm shifts," of "100% guarantees," of things being "different this time."

Which is ironic, because if manipulation is real (and let's remember there currently stand dozens of lawsuits vs. JPM that, if nothing else, have not been summarily dismissed) then things are certainly very different this time. Ted Butler sums up the silver bulls vs. bears state of affairs the best:
"Against the backdrop of a surging silver price, the calls for a sharp sell-off continue unabated. As I previously reported, almost all those calling for a sharp correction seem to share a commonality, namely, a disbelief in the silver manipulation. I think this is a crucial observation. Let me stipulate first that there can be a correction in the price of silver regardless of whether it has been manipulated or not. But nothing can be more important to the future direction of silver prices than in understanding whether this market has been manipulated. To those who don’t believe silver has been manipulated in price, it’s hard to see how the price won’t collapse. Those who believe that silver has been manipulated [like me] know that the price will explode when the manipulation is terminated. That’s a clear line of demarcation."
*Update: Here is the other video adduced by Mr. O'Flanagan, who raises some good points vs. manipulation in defense of his position in the comments:












18 comments:

Robert Leroy Parker said...

Excellent points GM Jenkins. Trader Dan and Jesse have also expressed hesitancy about silver today. I am considering lightening up into the weekend.

For those interested I made an interactive self updated version of Jesse's NAV of Certain Precious Metals Trusts spreadsheet.

Bookmark this link if you like

Louis Cypher said...

Nice post GM
Looking at the video it was interesting that the "expert reporter" didn't know where to sell the coins. The simple answer is where you bought them. Duh!
It would have been a more interesting story if they had followed up with the first guy they interviewed who wanted to take his physical from the vault and couldn't.
The way they painted the story was the crazy guy will never sell and the smart guy who bought one monster box of silver took his winnings off the table by selling half his stash.

I didn't have the patience to read though all the back and forth on SGS' blog the other day as it just degenerated into personal attacks within a few posts.

The flipside of all this is Bix Weir.
$1,000 OUNCE SILVER IS CONSERVATIVE!
http://www.roadtoroota.com/public/578.cfm

GM Jenkins said...

@RLP: thanks for the link! I will bookmark it

@Louis: re: the video you commented on: i just realized O'Flanagan linked to two CNBC videos and I posted the first-- accidentally it turns out since I referenced the second video in my comments. I've since switched it, but both videos are well worth watching ... you're right how the first video was spun to make the second guy look like the savvy investor!

Brian O'Flanagan said...

GM Jenkins:

Thanks for linking to my post and for your take on it above. If I may defend myself, my point was more that CNBC actually covering a coin show was indicative of a top than the content of the video. I do agree that they did spin the seller as perhaps the wise one but the dealer discussing the overwhelming demand for silver got to the heart of this mania. The demand for silver is insatiable right now. And the fact that people want it even more at $44 than they did at $20 is strange to say the least.

You also brought up Ted Butler and the silver manipulation argument. Ted says that the price will explode when the manipulation ends. But the evidence is overwhelming that if did ever occur (a big if in my view), it ended at least one year ago. The CFTC Bank Participation Report shows a sharp and consistent decline in bank net shorts in silver (though it has stabilized in recent months). You cannot manipulate something lower and be buying at the same time. Even if you argued that some other entity is doing the shorting instead, commercial net shorts are much lower today than they were last October, when silver was trading at $22. Those expecting some sort of blow up top from a breakdown of an alleged manipulation scheme are going to be disappointed in my view. Not that a short squeeze won't happen - that may very well occur. But it would be from a fundamental demand imbalance, not the unraveling of any scheme.

Louis Cypher said...

I sometimes watch "Sqwauk Box" in the mornings to see who they have on and because Santelli is entertaining. Beyond that I really don't turn on the TV except to watch movie. Having watched those two clips I am reminded why.

GM, Can you put the other one back up so everyone knows what we are babbling about.

The second one was more disturbing than the first.

First look observations:

"price has become so crazy"
... translation you would be an idiot to buy now

"shortage of silver and congress wants the mint to explain why"
.... translation: it's the mint that is the bottleneck so this is a temporary shortage.

Notice under "POWER LUNCH" it says
"Cash in Coins"

"How about the ultimate price? How high do the dealers think it will go?" ... translation: dealers looking for greater fool

"Some dealers think between $1800 and $2000" ... translation: dealers because they want to sell you something

(Notice they said Dealers several times as in buyers beware because they are dealers)

"But Mark Teller thinks the new floor for gold is $1250" .... Translation: Anyone buying here is an idiot because it may spike up but then crash to $1250

Do I have my tin foil hat on too tight? :)
and who is Mark Teller and should I care?

Louis Cypher said...

Hi Brian,
"The demand for silver is insatiable right now. And the fact that people want it even more at $44 than they did at $20 is strange to say the least."

This is normal in any Bull market. The price is rising simply because of physical demand. Nothing more. The physical demand is forcing the price to rise. If the bankers are starting to step aside now it is because they are being forced to.

"The CFTC Bank Participation Report shows a sharp and consistent decline in bank net shorts in silver (though it has stabilized in recent months)"
I haven't noticed anything like that but I admittedly don't analyze the numbers like Butler and yourself. Got a graph?

"You cannot manipulate something lower and be buying at the same time"
Why not? I would think that is a genius move if you were trapped in a short position. I wish they would spike it down for a few days at least so I could get my hands on some more :)

"Those expecting some sort of blow up top from a breakdown of an alleged manipulation scheme are going to be disappointed in my view. Not that a short squeeze won't happen - that may very well occur. But it would be from a fundamental demand imbalance, not the unraveling of any scheme."

Yes I would agree if I agreed with everything you said above. Is it a fundamental imbalance is the question. If there is a fundamental imbalance it is on the side of the central bankers desperately trying to keep John Laws scheme alive. We know how that ended and each subsequent paper scheme ends the same way. Debasement and finally death of the currency. The only difference is John Law never had a world reserve currency to play with. History has shown us all of these schemes blow up. The only difference is now the whole world is playing this game. If people knew their history it would be game over already.
40 years on average per paper currency.
Here we are at year 40. Place your bets.

Brian O'Flanagan said...

Louis,

Here's an excellent graph from Casey Research:

http://www.caseyresearch.com/sites/default/files/BPR_1.png

Notice the pretty consistent decline in US Banks short interest.

It defies common sense that one could manipulate the market lower and be a net buyer. Sure you can come in force at some opportune time and cause some stops to be hit and maybe get a few longs to panic but then you must reverse and buy. The same guys you shook out would then see the price heading back up and re-enter their positions. Likewise when such action become a pattern, the market then takes even more advantage - lets you knock it down even lower for a little bit and then when you are done selling they then buy aggressively. The manipulator would then have buy at higher prices than it sold, accomplishing nothing and losing money too. The market isn't as stupid at GATA thinks.

The only way to manipulate a price lower and keep is lower is to constantly supply new short positions to the market. That would be evidenced in an exponentially increasing short interest.

GM Jenkins said...

Here's an interesting article (from GATA) re: manipulation for "some of you who might be wondering how J.P. Morgue et al really do it."
http://news.goldseek.com/GoldSeek/1303221043.php

[An aside: who came up with the now viral JP morgue, Ben Bernank jargon ... was it SGS?]

Warren said...

Mr GM Jenkins, nice post! Nice Avatar!

These are all excelent discussions : looking at my pile of silver and try to figure out next moves. Thanks Brian for your input here.

Yes you're right - the 'Bernank', 'JP Morgue' was in the original Bears 1 video, I think the 'Bernank' reference was originally an artifact of the text-to-speech translation engine not being able to pronounce the 'e' properly - and the Morgue is an old nickname I think, but it also appeared in the video. 'BTFD' came from a similar video popularized on zero hedge (two superheros) shortly after that, which was attempting to capitalize on the popularity of the bears video.

I'm getting a much clearer picture of everything which is going on now with the price. I think the key here is derivatives. I don't know how yet (am researching). But I think it's possible everything is so messed up that everyone is right at the same time. Database close to completion.

Louis Cypher said...

Brian,
We could throw graphs and numbers around and our positions would probably not change and it would be incredibly boring and no one would read it.
So I'll sum up my position with this;

I can say that with 100% certainty, because of Andrew Maguire, Silver is manipulated. If he can tell someone the exact time and day in advance what will happen with the price then is there really anything more to be said about it?
So it comes down to whether one believes Maguire can see into the future and has an axe to grind with the big banks or he was simply telling the truth.

Whether we are in a bubble or not ?????

Louis Cypher said...

Grin at posters pardise threw this char out there. Good perspective on Bubbles.
http://goldtent.org/wp-content/uploads/2011/04/bubblecom05comp.png

Kid Dynamite said...

Louis - don't confused short term manipulation with long term manipulation. Could I walk into any asset class today and change the price with size buy orders or sell orders? Absolutely. SHORT TERM... and when I stop?....

Louis Cypher said...

Of course you could if you had the money. But Maguire was not accusing anyone of short term manipulation. Just the opposite.

Louis Cypher said...

Look all markets are "manipulated". So are we discussing a matter of degrees? Does that make it right? Is it OK for one guy to corner the Cocoa market. Is it OK for OPEC to collude on price via production? Is it OK for Silver as a commodity not keep up with inflation for decades?

Whether you look at silver as a commodity or as money until recently silver has been a negative return for decades. That should be an indication there is something screwey.

Robert Leroy Parker said...

Silver was out of the publics favor for decades as well. Supply and demand did not dictate it should maintain value with inflation just like many other commodities. However, when there was demand, such as the buffet purchase, the market moved right away.

It is going nuts now because of public interest, whereas gold has continuously had buyers of size, and I think there is a much better case to be made of manipulation through fractional reserve lending by the bullion banks.

GM Jenkins said...

Thank you Warren. I had to settle for the second ugliest prosimian. Looking forward to your derivates expose.

Hey kid dynamite - i recll you are a poker afficianado. How the f#$@ can I get my life savings out of my fulltilt poker account?

As far as the silve rtop is concerned, having thought more about it, I will go ahead and say we're safe until time or newsweek put gold/silver on the cover. They triggered the internet crsh by making Jeff Bezos man of the year. There was of course this ... and dont forget this exactly one year ago

Yukon Cornelius said...

Just wanted to pop in here and say I really like to see these types of post and really enjoyed the discussion. Screwtape Files is now one of the sites I check daily. Good job guys!

Louis Cypher said...

One last thing and I'll shut up.
I always hesitate to talk numbers and charts only because the numbers reported are not transparent and charts are subjective. For example the chart Brian referenced looked to me like a bunch of failed raids and Brian saw something completely different.
The numbers the Comex produces sometimes don't balance or look suspect (bars that are too exact etc.) and when these guys can execute trades in microseconds producing a spreadsheet that is fed from these trades is childsplay.
The videos in the article above were interesting in what they tried to do. To me they seemed to have one purpose and that was to discourage investment in Silver.
We are bombarded on a constant basis with P.R.
P.R. is just another word for Propaganda. A very clever fella by the name of Barnays coined the phrase because Propaganda as a word had nasty connotations. In one fell swoop this guy turned something to be suspicious of into something acceptable. Genius.

http://en.wikipedia.org/wiki/History_of_public_relations