Ranting Andy: Occam’s Razor and the Precious Metal Market

RANTING ANDY – Occam’s Razor is a logical principal stating that “one should not increase, beyond what is necessary, the number of entities required to explain anything.”  In other words, the simplest explanation is usually the correct one.  By my life experience, this principle is correct roughly 99% of the time.  Science, and humanity, are pretty consistent in their respective behaviors, and the same goes for financial markets.

Technical and fundamental analysis have been used successfully for centuries, and in my case over a 20-year career as an equity analyst.  Stocks tend to rise with good news and fall with bad news, just like commodity stocks tend to outperform commodities in bull markets and underperform them in bear markets.  These patterns have repeated themselves for centuries, and would continue in like manner were it not for one small wrinkle….ALL financial markets, particularly in the Nazi States of America, are now rigged.

Governments have always had an “invisible hand” in the markets, acting indirectly to influence stock prices via the setting of artificial interest rates via Central Banks or gold prices via the London Gold Pool, and at key points in history have been known to intervene directly.  But the U.S. was largely a freely traded stock market until the 1987 crash, when President Reagan created the “President’s Working Group on Capital Markets” (i.e. the Plunge Protection Team) to directly intervene in financial markets at times of crisis.

The PPT, created simply as a buyer of last resort during emergencies, lie dormant during the 1990s, until that fateful day in September 2001 when the history of America changed, which I watched first hand from 10 blocks away, I might add.  When the stock market finally re-opened a week later, the PPT clearly was in the market supporting the Dow, to such a level of blatancy that even a child could recognize it.  Not uncoincidentally, that period also market the top of the bull markets in both the Dow and the dollar, the end of the bear market in gold, and the commencement of a long decade of market manipulation.

After 9/11, the PPT increasingly shifted from an “emergency buyer” to a regular buyer, gradually increasing its role in the markets to where we are today, a market managed 24/7 to make sure it NEVER has a meaningful decline.  And that interference is now rampant in all markets, such as Treasury bonds, currencies, and, of course gold and silver.  By now, we all know the paper gold and silver market is a fraudulent, fractional system in which “paper ounces” are created in multiples of hundreds or even thousands of actual existing metal, and we also know that concentrated, naked short positions are not only prevalent in the metals and PM stocks, but blessed (and promulgated) by regulatory authorities.  If I hear one more person say that “JP Morgan is in trouble due to its silver short”, when in fact it is just a branch of the U.S. Government, who is the REAL PAPER SILVER SHORT!

In fact, the incidence of naked shorting of stocks (PM and otherwise) has blown up to epic proportions, to a point today where not only are such violations not enforced, but apparently no one even cares anymore.  And now that High Frequency Trading has been perfected (to the point where criminal investment banks post trading profits EVERY DAY), massive algorithms have been created to make sure that certain sectors consistently trade the SAME WAYS ALL THE TIME.

In the case of paper gold, for instance, trading is so predictable that I can summarize it one paragraph.  At 3:00 am EST, after trading flat or rising nearly every night, gold and silver suddenly drop sharply on 80% or so of all trading days.  When the COMEX opens at 8:20 am EST, paper gold drops sharply roughly 80% of the time as well.  Moreover, if you watch CNBC quotes in the hour leading up to the NYSE open, you’ll see that EVERY SINGLE DAY WTI Crude has a sharp dip at some point in this hour, at which point paper gold prices automatically drops at twice the rate of oil (doesn’t matter if Brent is rising, by the way, as the ALGOs are set versus WTI Crude).  Of course, when oil rises during this period, gold never keeps up with it.  Then, after the NYSE opens at 9:30 am, the price of gold has roughly 30 minutes to rise before the PM Fix at 10:00 am, at which point gold falls sharply on roughly 80% of all trading days.  If it manages to rise after 10:00 am, it doesn’t matter much because roughly 90% of the day’s gains have been made already (particularly if gold has risen by the mandatory 1% cap limit), and in those rare cases you’ll see that gold is capped exactly two hours later at 12:00 pm EST roughly 95% of the time. 

Applying Occam’s Razor, one would clearly conclude that such aberrational behavior, relative to hundreds of years of stock market history, could only be attributed to manipulation.

As for the shares, they meet massive resistance in the first 5-10 minutes of trading EVERY DAY, ensuring no early morning momentum that could generate a buying panic.  The HUI tends to peak for the day in the first half hour of trading (as it did EVERY DAY this week), and then dribbles down all day long, with periodic crashes that are never matched by intense upward moves.  In fact, now that the GOVERNMENT COMPUTERS have taken over, algorithms are built into the market ensuring that the HUI falls anytime the Dow is falling (by at least a 2x rate), any time oil is falling, any time copper is falling, any time the Euro is falling, etc., etc., etc.. 

I don’t just BELIEVE that GOVERNMENT COMPUTERS run the stock market now (I haven’t even discussed the predictability of the Dow), I KNOW IT.  Do yourself a favor and watch a stock like SVM (the low cost silver producer on earth) trade for a few hours, and you’ll know what I mean.  Just like trading in GLD and SLV, two of the most fraudulent securities ever created, you’ll see that the ask size is larger than the bid size roughly 90% of the time, and that it is never allowed to rise more than a cent at a time while it is constantly plummeting by 5-10 cents at a time on no volume, as in 100 times a day or so.  These computers, spitting out naked shorts all day long in essentially all important PM stocks, have caused roughly 99% of PM investors (my estimate) to lose money in the sector, while roughly 1% (I like to believe I’m in that minority) deal with a lot of misery, not to mention a lot less stock market gains than are warranted.

Applying Occam’s Razor, one would also conclude that such aberrational behavior is not a coincidence.

Despite all the evidence (and admissions) of PM market manipulation, many “analysts” refuse to change the way they look at markets, even those squarely in the manipulation corner.  They refuse to realize, for instance, that a weak short-term HUI or gold price CHART does not mean “the market” is expecting a gold price crash, and essentially has ZERO PREDICTIVE POWER.  It simply means the Cartel is successfully creating that perception through endless naked shorting, particularly at strategic times such as the open or close of paper trading or around key events such as employment numbers, Fed meetings, or Presidential speeches.  Heck, they even refuse to acknowledge that something is amiss when gold is continually pounded in the aftermath of crisis events such as the Japanese earthquake (can’t have it being a safe haven).

Applying Occam’s Razor, one would also conclude that such aberrational behavior is not a coincidence.

In nine years of being 100% invested in this sector, I have never seen anything as blatant as the HUI action this week.  How ANYONE watching this sector, particularly a gold/silver “expert”, can give any other explanation of what we saw this week (and this year for that matter) other than government manipulation, is beyond me.

First, the statistics for this past week:

Gold                            +1% (to an all-time high)

Silver                           +5% (to a 31-year high)

Dow                             UNCHANGED

Dollar                          UNCHANGED

HUI                             -4%

And now for calendar 2011:

Gold                            +5%   (to an all-time high)

Silver                           +40% (to a 31-year high)

Dow                             +7%

Dollar                          -6%

HUI                             +2%

XAU                            -3% (!!!!)

and, oh yeah:

Oil                               +22%

OSX (oil service index)           +16%

From my trained eye, the GOVERNMENT COMPUTER ALGORITHM ATTACK on gold mining stocks started in December 2010, shortly after silver breached $30/oz for the first time.  After watching gold mining stocks (senior and junior) underperform bullion for several years, we saw a brief week or so of frenetic buying activity across the board, the type that PM investors have not seen in the past four years on absolutely massive trading volume.  That excitement threatens everything TPTB are fighting against, as manic demand for PM investments would likely result in a rapid decline in paper investments, particularly Treasury bonds and, generally, anything dollar-denominated.  It was then that the computer algorithm trading started to show up en masse, with successive major smashes to PM stocks in both November and December before the comical 14% HUI decline we all enjoyed starting in the FIRST HOUR OF TRADING of calendar 2011 for no apparent reason.

But even that paled in comparison to what we saw this week, starting with sharp paper gold and silver declines EVERY SINGLE DAY at exactly 3:00 am EST, and sharp HUI declines EVERY SINGLE DAY within minutes of the NYSE opening, despite the fact that outside market forces (such as SOARING silver prices, for instance) were extremely bullish for the sector.  And let’s not forget the bogus Bolivian nationalization rumor (refuted one day later), which reminded me a lot of the “Bin Laden Captured” and “IMF to sell gold” rumors that were used to attack PMs countless times in the years following 9/11.  Think it was a surprise that the rumor targeted Bolivia, where two of the largest silver mining stocks (PAAS and CDE, of which I own neither) are major players?

Applying Occam’s Razor, one would also conclude that such aberrational behavior is not a coincidence.

Before ending this RANT, I have one more topic to address, one that has drawn my ire for years now, but has finally motivated me to write (much as my Warren Buffet RANT last week).  And that topic is the ridiculous notion that “hedge funds” are buying gold and silver (likely via GLD and SLV) and shorting mining shares.  I hope I don’t ruffle any feather with this, but that has got to be the most ridiculous thing I’ve ever heard, for many reasons.  This silly hypothesis, which seems to gain traction in PM land every time the PM stocks are hit, is a perfect example of “analysts” refusing to address the most important issue in the market – MANIPULATION.  Thus, they feel the need to make up silly theories to explain why the market did what it did – in other words, MARKET ACTION MAKES COMMENTARY!

Let’s think about this a bit.  To start, who are these “hedge funds”, given that PM’s still represent only 1% of all global financial assets, and are they really powerful enough to take down the entire PM mining sector for weeks (or months) at a time?  Really? 

If so, I think I’d have heard by now of these amazing hedge funds that are making so much money at the expense of 99% of PM investors.  If, for instance, Silver Wheaton is trading 17 million shares, or $750 million a day in the U.S. and Canada, in an environment of SOARING silver prices, am I really to believe that some “hedge funds” are selling that much stock EVERY DAY in a frenzy of shorting, not to mention two dozen other major PM stocks?

And in all my years of investing in commodity markets (I was an oilfield service analyst for nine years prior to my nine years in PMs), I have never heard of such a ludicrous concept of a trade as shorting commodity stocks against the commodity.  Oilfield service stocks have outperformed the price of oil since the beginning of the oil bull market in 1995, and I’ll bet anything that copper and agricultural stocks have outperformed the underlying commodities, respectively, in their bull markets as well. 

Moreover, not once in nine years of working in perhaps the largest Energy research department in the world (at Salomon Smith Barney) did I hear about clients shorting E&P or oilfield service stocks against the price of oil.  And why, you might ask?  Because it’s RIDICULOUS!  The only instance I can think of where this is likely happening is among the criminal Canadian investment banks that, in the absence of ANY naked shorting enforcement at all, enjoy non-stop shorting of their clients with the goal of getting them to price stock offerings (with tons of warrants, of course) at prices so low that the companies rarely have a chance to ever recover from the dilution.

And one more thing to add, which goes out to the majority of people reading this RANT, whom are probably among the most educated and savvy in the world.  Don’t let ANYONE tell you the “smart money” is doing something that is above your head!  YOU are the smart money, not them!  That is why you have invested in gold and silver, while 99% of the Western world has not.  No, there are no “brilliant hedge fund managers” doing things you are not capable of, and frankly most of the ones that seem to be invincible turn out to be criminals, too, such as John Paulson with his shady deals with Goldman Sachs and bailouts from the Federal government. 

WE are the smart money, and NOT ONE OF US would even DREAM of “shorting mining stocks against gold and silver”, particularly microcap junior miners with cash in the bank, valuations 70% below the 2007 levels, and, oh yeah, an environment of RAMPANT INFLATION and SOARING GOLD AND SILVER PRICES!

Believe me, if YOU haven’t thought of doing such things, there is no “smart money” that has.

And I’m sure William of Occam would agree.

P.S.  For those of you trying to figure out where the gold stocks stand in the big picture, I want to direct you to a few charts I have found, and constructed, which might give you some good insight.

First, I found a chart created by Frank Barbera of ‘Financial Sense’ in 2005, listing the performance of the “Unweighted Gold Index” from 1971, or just after the London Gold Pool was disbanded, through 2005.  As you can see below, the sector last peaked in late 1980, several months AFTER the parabolic spikes of gold to $885 and silver to $49, respectively, in January 1980. 

The sector then crashed in 1981-82, before consolidating for the next 12 years (briefly making a new high in 1987, in fact).  In 1997, when Bre-Ex collapsed, the sector crashed again, finally bottoming in 2000, coincident with the end of the 20-year bear market in gold and silver prices.  In 1994, a MASSIVE reverse and head and shoulders pattern started to form, one which Frank Barbera extrapolated rather presciently thereafter. 

Of course, he assumed a breakout from this formation in 2009, which in hindsight was pre-empted by the global market crash (and coincident gold/silver Cartel attack) in 2008-09, setting up an even more powerful reverse head and shoulders formation today.  As you know, I believe that ALL SHORT-TERM price charts in the PM sector are WORTHLESS, completely the product of fraudulent market rigging.  However, LONG-TERM charts are another story, particularly because short-term suppressions create MASSIVE resistance levels that, when broken, become powerful launching pads.

I do not know the components of Mr. Barbera’s gold index, but I substituted (below) the HUI from the time his chart ended in 2005 until the present.  My chart isn’t as pretty, as I just used bi-annual data points, but as you can see the Index is, AS WE SPEAK, pushing up against the aforementioned MASSIVE resistance point better known as its ALL-TIME HIGH.  The reverse head and shoulders formation is now a whopping 17 YEARS OLD, and on the verge of completing the right shoulder, which should LAUNCH it to unimaginable levels.

Just as gold took off after exceeding its all-time high several years ago, both silver and the HUI are on the verge of breaking multi-decade resistance and taking off into the stratosphere.  The GOVERNMENT COMPUTERS attacking this sector are trying to avoid this inevitability, but in time the tide will wash over them at 1,000 miles per hour.

2 Responses to Ranting Andy: Occam’s Razor and the Precious Metal Market

  1. isaac hausman says:

    Hi Andy,

    Nazi states of America is too harsh of language. otherwise one hell of an article. thanks Isaac

  2. Ron says:

    Thank you for the schooling. I have bookmarked your site and look forward to learning more.

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