Market Observations with Rob Kirby

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Noting the Notables

by Rob Kirby, Kirby Analytics. July 31, 2006

For those of you who may have missed it, the New York Post's John Crudele penned a piece last week titled, Come Clean, Ben! Building on previous articles Crudele has written about the Plunge Protection Team [a.k.a. The Working Group on Financial Markets or PPT]. The piece highlights an exchange between Rep. Ron Paul and Federal Reserve Chairman Ben Bernanke up on Capitol Hill a couple of weeks ago at the House Financial Committee hearings. The gist of Rep. Ron Paul's line of questioning to the esteemed chairman was whether or not the PPT had in fact intervened in the equity markets to lend support to General Motors stock.

"And the reason this came to my attention was just recently there was an article that actually made a charge that out of this group came a position that interfered with the price of General Motors stock. Have you read that? Or do you know anything about that?"

Responding to this direct line of questioning, Mr. Bernanke asserted,

"No sir. I don't."

Understand folks, the PPT constituents are the Treasury and, of course, the Fed as well as the SEC (Securities & Exchange Commission) and the CFTC (Commodities Futures Trading Commission.) When questioned by Rep. Paul, Crudele points out that Mr. Bernake "guessed" that the PPT met four or five times per year – but wasn't sure.

When Rep. Paul asked Mr. Bernanke if "minutes" or records were kept of the PPT meetings – Mr. Bernanke responded that he "believed" there were records kept – but not completely sure by exactly who – and "did not know" if those records would / could be made available to lawmakers.

Pretty decisive stuff from a man charged with oversight of the most powerful private corporation in the world, eh?

Fresh Off The Press

Just this morning, July 31st, Peter Brimelow of CBS Market Watch served up this commentary:

Schultz suspects market manipulation

This article records the insight of highly regarded letter writer, Harry Schultz, in his latest letter to clients where he suggests,

"There is a paradox in market prices as I write. We have gold, U.S. dollar, oil and most stock market indexes all showing a readiness to move up. It is an illogical combo. It may be a temporary fluke or it may be there's manipulation of the indexes going on."

What makes gold, the U.S. dollar and stock indexes all showing a readiness to move in the same direction so odd you may ask? For one thing, gold versus the U.S. dollar – the two are generally viewed as the mirror opposites of each other or negatively correlated. The same relationship exists between the price of gold and the stock market indexes!

As Schultz points out,

"It is fairly easy to manipulate stock indexes via just three or four blue chips, and the multinationals appear in several indexes. We've seen it before. Most stock markets were in virtual free fall and suddenly reversed into reverse head-and-shoulders buy patterns. This is a rarity. The U.S. dollar index may also be subject to manipulation."

So, the notion that financial markets are manipulated – while not over reported - is not completely lost on the mainstream financial media. But while some in the mainstream press are willing to accept the notion and report on suspected manipulation in equities and foreign exchange, they seem much less willing to accept that the same type of shenanigans go on in precious metals.

Eye On Precious Metals – Near Term, Silver Is Key

One thing that readers would be well served to keep a close eye on in this regard; COMEX silver inventories have recently dipped below the critical 100 million ounce level:

Previous TotalRec'dWithdrawnNet ChangeAdjTotal Today
Total Registered456834710624033-624033045059438
Total Eligible549279680139357-139357054788611
Combined Total1006114390763390-763390099848049

It has been speculated that "a single short" or one player on COMEX may be short as much as 175 million ounces of the stuff. Remember that for every "short" there is a corresponding "long." Given that total COMEX inventory [all owned] is now less than 100 million ounces and silver has just endured a +30% price correction [from roughly $15 to $10] - and this "short" has not covered. How is this massive short position going to be resolved? If a precipitous 5 dollar decline in the price of silver has not prompted the "longs" to capitulate – allowing the "short" to cover – what will?

If you take anything away from this market wrap, I hope it’s this: Ignore day to day price movements – it’s noise – and make sure you own some physical silver - and gold too!

Today's Market

Overseas equity markets began the week on a positive note with Japan's Nikkei Index gaining 113 points to close a 15,456. North American markets weren't so fortunate with the DOW off 34.02 to 11,185.68, the NASDAQ off 2.60 to 2,091.50 and the S & P giving up 1.90 to end the day at 1,276.65. NYMEX crude oil futures added 1.16 to end the day at 74.40 per barrel.

Interest rates rallied at the long end of the curve – the 2-year bond ended the day at 4.97%, the 5-year at 4.90% and the 10-year at 4.99%.

In the foreign exchange markets, the U.S. Dollar Index was off .10 to 85.09.

Precious metals markets were mixed with COMEX gold futures giving up 1.50 to 634.80 per ounce while COMEX silver futures were unchanged at 11.38 per ounce. The XAU was ahead .38 to 142.00 while the HUI lost .07 to 330.14.

On tap for tomorrow, at July Auto sales – expected 5.5M vs. 5.3M. July Truck sales – expected 7.7M vs. 7.2M. At 8:30 a.m. June Personal Income – expected +.6% vs. +.4% and June Personal Spending – expected +.4% vs. +.4%. At 10:00 a.m. June Construction Spending is due – expected +.2% vs. -.4%. Also at 10:00 a.m. the July ISM Index is due out – expected 54.0 vs. 53.8.

Wishing everyone a very pleasant evening and last day of July, 2006!

Rob Kirby

© 2006 Rob Kirby

Contact Information

Rob Kirby | Proprietor, Kirby Analytics Newsletter - Proprietary Macroeconomic Research
Toronto, Ontario, Canada | Observations | FSU Editorials | E-mail

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