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The ins and outs of ‘silver selloff’ explained – New Dan Mangru Financial Commentary May 5, 2011

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MANGRU ON MONEY

The ins and outs of ‘silver selloff’ explained

Exclusive: Dan Mangru reveals why small-timers are crushed and big boys win


Posted: May 04, 2011
8:22 pm Eastern

By Dan Mangru
© 2011 WorldNetDaily

It sounds so harsh. The rich get richer and the poor get poorer.

Almost makes you want to go out and register as a Democrat. That way we can redistribute some of this wealth as our current president would like.

But the current silver market is a classic case of irrational individual investors driving up the price of the market, only to have sophisticated institutions leave them holding the bag.

Well how did this happen and what happens to the silver markets from here?

The silver rally goes back to the bailouts of late 2008. After $700 billion of TARP, billions more to save the auto industry, and the election of Barack Obama, it became very clear that the U.S. was in the mood to print cheap money.

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After reaching a low of $8.79, silver began to slowly rally. First it rallied due to Ben Bernanke almost tripling the monetary base. Then it rallied due to the $860 billion Obama stimulus. Then it continued to rally after Obama became the first president in United States history to rack up a yearly deficit in excess of $1 trillion.

Before we knew it silver was trading in excess of $30 per ounce.

Wow. What a move.

After going up some 400 percent individual investors started to take notice. Then as the U.S. markets started to sputter, Ben Bernanke and the Federal Reserve instituted something called Quantitative Easing 2 or simply QE2.

QE2 has the net effect of placing more U.S. dollars into the financial system and ultimately into circulation.

When more dollars are placed into the market without the necessary demand, inflation happens.

BINGO.

This was the impetus that individual investors needed to get in the game. Silver again started to skyrocket.

Then came news that Bernanke didn’t plan to stop QE2 by this June and planned to take it further.

Blastoff.

We now saw silver hit intraday highs in excess of $49, a sign of major speculation and irrational exuberance.

You see in silver markets, many individual investors are leveraged buyers of the metal. What that means is they take a loan out to buy more silver than the money they have in deposit.

While some individual investors use a smart amount of leverage, many times they are tricked into borrowing anywhere between 4-8 times their money.

Case in point, if you had $10,000 cash in your account, you could buy let’s say $50,000 worth of silver borrowing at 5:1 or five times the amount of money you have in the account, for a total borrowed amount of $40,000.

Utilizing margin is supposed to maximize your profit, but when used unwisely, it maximizes your risk.

If you bought silver between $47-49 with this type of margin, your overall account value would be in the area of $37,000-$39,000 (depending on fees, costs, etc.).

That means that you have lost all of your original $10,000 and you are now liable for the difference between your account value, in this case $37,000-$39,000, and your loan value, which in this example is $40,000.

Had you just bought $10,000 worth of silver, your account would be down to about $7,500-8,000 but you would still have positive equity. With unsafe leverage in our example above, you end up owing between $1,000-$3,000. This is known as a margin call.

From $8k to owing up to $3k. That’s a very big swing.

Now getting back to overall markets. Realizing that leverage and speculation were driving prices higher, the CME Group (which is the owner of the Chicago Mercantile Exchange) hiked margin requirements three times since the beginning of last week.

This caused firms to tighten up their leverage and some firms even made stricter requirements than the CME Group.

The reduction in the amount of leverage that can be used caused selling pressure to increase last week which brought silver down to $45 an ounce after trading higher than $49 per ounce just days before.

Then add on top of this a once in a lifetime event (literally), with the death of Osama bin Laden. This sent silver prices, which rallied back to $48.22, down to $42 per ounce.

However, once the market absorbed the Osama factor, silver prices rose in excess of $47 off its Osama lows.

Institutions know the game. They knew that with margin requirements tightened that if they started selling they could trigger a significant selloff in silver. So they did.

As institutions were selling, individuals who were overleveraged in silver began what the term “margin call” means. As the price went down, it triggered individual investors to sell their positions in order to cover their investment amounts. This drove down the price of silver even further.

Add on top of this hedge fund gurus like George Soros indicating that he will start to liquidate his long gold and silver positions, and the down market can take on a life of its own.

As the market continues to go down further, shaking out most individual investors, we will start to see institutions re-enter the game, buying back in the $30s the same metals that they sold in the $40s.

You see even the institutions that are just getting out now (in the low $40s to high $30s range) aren’t concerned because they’ve been buying silver since it was trading in the $15-20 range.

So to them all they lost was just a couple bucks of profit.

But the opportunity to take silver from $49 to let’s say $36 just to buy it back again and ride it all the way to $50, that’s a score.

For silver buyers out there, key adages provide the proper insight into these markets.

The first adage to follow is to remember history. Historically, gold trades at a 16 times premium to silver. These days that ratio is at 38 (meaning the price of gold is 38 times the price of silver.

Although margin requirements on silver are now more onerous than those on gold, the underlying fundamentals and price ratios for silver make it very attractive.

Secondly, individual investors in silver should be long-term players, not short-term flippers.

Silver is a dangerous metal. It can go up and down as much as 20 percent in just a couple of days. We’ve seen that before. We’ve seen it now. And we will certainly see it again.

If you are a long-term player you can afford to sit out these short-term hiccups and just focus on the long term fundamentals. The U.S. dollar is heading down, emerging markets are consuming more, and the demand for silver (industrial, inflation-hedge, and luxury) is increasing.

Just look at U.S. debt. We have $14 trillion in unfunded Social Security liabilities, $77 trillion in unfunded Medicare liabilities, and $19 trillion in unfunded prescription drug liabilities.

That’s $110 trillion new dollars that we have to print just to cover our existing liabilities. God forbid that President Obama figures out a new way to start spending even more money.

So when you want to know where the price of silver is going, I’m going to give you the same answer that Steve Forbes gave me today while we talked at Starbucks, “Just follow Ben Bernanke.”

Because as Bernanke gets the orders to print the dollars to pay the bills, silver will go up and up and up.

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Read more: Why small-timers are crushed and big boys win http://www.wnd.com/?pageId=295069#ixzz1LULA2Lab

War On Your Dollar – Bernanke’s September Surprise – The Mangru Report on Fox Business – Episode 20 October 7, 2010

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Federal Reserve Chairman Ben Bernanke recently announced that the recovery was not as strong as originally thought, the U.S. did not have enough inflation, and that the Fed would increase it’s debt purchases & inject more money into the system.

Watch Dan Mangru, John Browne (Euro-Pacific Capital), Anthony Pulieri (United Bullion Group), and Michael Solomon (Author, Where Did My America Go?) discuss how the dollar is being devalued, how Bernanke has created the perfect storm for gold, why China is not buying U.S. debt, and whether there is too much hype and excitement in the gold market.

Links:
Worried About Your Wealth? – Read This TODAY

New Poll: Is the Tea Party Legitimate? – CLICK HERE TO VOTE

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Buy and Hold Still Holds – John Browne Commentary September 5, 2010

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Buy and Hold Still Holds
By:John Browne
Thursday, September 2, 2010

As Americans have justifiably lost faith in the stock market, the classic buy-and-hold investment strategy has fallen from favor. The problem is that retail investors are wrongly equating the performance of stocks as a class with the trajectory of American stocks in particular. Fortunately, buy-and-hold still works in many parts of the world. If you are an American, just don’t try it at home.

The US market is in sorry shape. The Dow Jones Industrial Average and the S&P 500 are presently no higher than they were 12 years ago. If you factor in 12 years worth of inflation, then these results are abysmal. Although American stocks have gone nowhere, extreme economic stress has nevertheless created huge swings of volatility. During the past decade, US stocks have surged 50%, plunged by similar amounts, and then risen and fallen again.

To be a successful player in such a volatile, directionless market requires the kind of knowledge and vigilance that only the best financial professionals possess. The key to trading is the flexibility to make very short-term movements in and out of stocks and sectors, combined with rigorous sell discipline. Oftentimes it means placing a short-term bet on a company and sector even if one believes the move makes no long-term sense. As these capacities are not common among retail investors, who can blame them for heading to the exits?

While attention is often showered on the traders who find success with short-term momentum plays, less attention is paid to fundamental economic growth, which is, after all, the main reason that rank-and-file investors profit from the market. A growing economy lifts all boats, and brings buy-and-hold investors along for the ride.

In recent times, the long-term trend of a massive shift in growth from American and European developed economies to emerging economies, especially to China, has benefitted greatly the buy-and-hold strategies of investors following that mega-trend. I believe that this trend will likely continue over the long-term. I also believe that emerging-market stocks will not be as vulnerable to the next downturn in US stocks as they were in 2008.

Recent conclusions from a number of high-profile research organizations support this forecast. According to IMF estimates, developing economies’ debt will average about 40 percent of their gross domestic product this year, compared with 107 percent in advanced economies. The IMF believes that this comparatively lower debt burden will help the developing economies grow 6.4 percent as a group in 2011, greatly surpassing the 2.4 percent expansion expected in the developed world.

According to Morgan Stanley, emerging-market companies are finding better opportunities to reinvest their earnings, producing a return on equity of 14.8 percent, compared with 10.2 percent in the developed world. *

However, despite this tremendous growth and profitability, shares in the emerging markets remain at attractive valuations relative to the mature economies. In fact, data compiled by Bloomberg shows that for the past decade, except for the 10-month period ending in May 2008 (right before the crisis began), emerging-market shares consistently traded at lower earnings multiples than developed markets. The MSCI Emerging Markets Index has traded at an average discount of about 30 percent to the MSCI World Index during the past 10 years, the data show.  *

Buy-and-hold remains a viable strategy for foreign stock investing at current valuations. The popular alternative, keeping savings in US bank accounts and bonds, is an increasingly risky strategy, in my opinion. While a natural recession would benefit savers and bondholders, as decreasing prices make a penny saved into a penny earned, the US government is determined to continue intervening in the market.

Washington, whether it is controlled by Democrats or Republicans, is unlikely to ever suffer the political consequences of stepping back in the face of recession. So, even while some form of austerity is sorely needed, it is extremely unlikely to be enacted.

Instead, more useless economic stimulus is likely to materialize. While huge infusions of government spending will create the short-term illusion of recovery, the result most likely will be greatly increased taxes, massive debt increases, a further lurch from private-sector wealth creation toward public consumption – and, finally, debasement of the US dollar.

So, retail investors sitting in US bonds and bank accounts will ultimately pay a steep price through inflation. The answer, it seems, is not to abandon stocks, but rather US stocks. Not to abandon buy-and-hold, but to adopt buy-and-hold-elsewhere. And if you were never a stock buyer, there’s always the security of physical precious metals.

For the full text of the article CLICK HERE NOW.

Steve Forbes One-On-One Interview with Dan Mangru – The Mangru Report – Episode 12 August 18, 2010

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Steve Forbes is one of his generation’s legacies of success, entrepreneurship, and wealth.  He is currently the Chairman and CEO of Forbes Inc. and has expanded the company founded by his grandfather, B.C. Forbes, to become a global empire spanning from the U.S. to Europe to Asia & the Middle East. Needless to say that when Steve Forbes talks, people should listen, as he speaks with insights learned from both his family and his experiences.

During Freedom Fest 2010, Steve Forbes sat down with Dan Mangru for a private one-on-one interview that you can only see right here on The Mangru Report.  In this nothing-held-back interview, Forbes answers the tough questions such as “Will Capitalism Hurt?”, “Will Inflation Ever Come?”, will the next century belong to China and Brazil, should investor’s trade currency, the problems he’s faced expanding the Forbes brand to places like India and Russia, media censorship in China, and how he’s managed to live up to the expectations following the success of his father (Malcolm S. Forbes) and his grandfather (B.C. Forbes).

Doug Casey To Appear On The Mangru Report On Fox Business This Saturday and Sunday August 5, 2010

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Famous contrarian investor, Doug Casey (Founder of Casey Research) will sit  down with Dan Mangru for a candid one-on-one interview.  During the interview, Doug Casey will discuss why base metals are not an attractive investment at this point, why he believes investors might see 1000 to 1 returns in Zimbabwe, and why hyperinflation is very possible in the United States.  In addition, Casey also will tell Dan Mangru what he thinks about the Tea Party and whether or not America is dead.

Also be sure to watch extended coverage from Freedom Fest 2010 of the Alternative Investing Panel with Dan Mangru featuring David McIlvany, Jack Reed, Terry Coxon, and Van Simmons.

The Mangru Report panel of experts for this upcoming episode will be former member of English Parliament John Browne, gold and precious metals expert Anthony Pulieri, and advertising and marketing guru Jim Whelan.

Dick Bove One-On-One Interview with Dan Mangru – The Mangru Report – Episode 10 July 16, 2010

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As the Financial Reform bill makes its way through Congress, Senior Vice President of Rochdale Securities Dick Bove is warning Americans of the dangerous ramifications.  According to Bove, in this exclusive interview with Dan Mangru, banks will start charging monthly fees for checking accounts and restrict credit for individuals and small business.  In addition, Bove discusses the credit card bill, inflation, bank reserve requirements, how banks can start lending again, and which bank CEO is next in line to be fired.

Carl Domino One-On-One with Dan Mangru – The Mangru Report – Episode 10 July 15, 2010

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From episode 10 of The Mangru Report, watch Palm Beach Investment Manager and Candidate for Florida Senate Carl Domino for District 25 discuss a second stimulus after President Barack Obama’s Economic Advisor Larry Summers suggested publicly that a new infusion of spending was necessary to the economy.

Domino also discusses in this interview with Dan Mangru topics such as retirement investing, inflation, stocks, bonds, and his thoughts on U.S. tax dollars being spent on illegals.  Carl Domino’s firm Carl Domino Inc. currently has over $2 billion in assets after starting with just over $3 million of assets under management during its initial formation.  Carl Domino’s opponent in the Republican Florida Senate Primary is Ellyn Bogdanoff.

Anthony Pulieri: The Bears Running Wild for a Decade in Stocks and the Bulls Charge Forward in Gold…. June 23, 2010

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Exclusive Commentary By Anthony Pulieri

Chief Investment Adviser

Joseph Glenn Commodities

I look at the U. S. stock market and see nothing but the destruction of wealth over the last decade and it sickens me to continue to see an entire society all in and over committed into stocks.  Are you kidding me?

We have just seen The Lost Decade.  The U.S. economy has expanded at a healthy clip for most of the last 70 years, but by a wide range of measures, it stagnated in the first decade of the new millennium. Job growth was essentially zero, as modest job creation from 2003 to 2007 wasn’t enough to make up for two recessions in the decade. Rises in the nation’s economic output, as measured by gross domestic product, was weak.  Household net worth, when adjusted for inflation, fell as stock prices stagnated.  Home prices declined in the second half of the decade and consumer debt skyrocketed.

I continue to see nothing but absolute market volatility and pressure downward.   Whether it was the dot.com bubble bursting, or the massive real estate mortgage foreclosure crisis, all the way to the 2008 market debacle and destruction of wealth, the last 10 years have been nothing but turmoil for the average American.  When it comes to investing, the last 10 years have been nothing but a short term traders market.  The buy and hold strategy that had succeeded for so long is no longer a recipe for success.

I had discussed that this market came way too far way too fast at the peak of 11200 on the Dow and the S&P move to 1200 was not justified.  This was just a short term bear market rally and here we are about to break the important 1040 mark.   If we see this break through a test of 950 could approach very quickly. I am still sticking with my belief of 9000 on the Dow and possibly even lower at 8400 in the short term.  Technically speaking the market seems to be breaking down.  It is having major trouble breaking through the almighty 200 day moving average.  If it is able to do so we could see a short term bounce, but if not the market will experience an extreme sell off and it will happen at lightning speed.

The European contagion has been growing and will continue to spread at a steady pace.  The entire continent of Europe is in major long term trouble and the Euro continues to get crushed. We have seen a dead cat bounce off the lows for the Euro but it is absolutely a flawed currency and the down trend will continue over the long term.  I do not see how this can change in the short term and what this has done is create a lack of confidence globally throughout Europe and America. The stock market trades purely off of confidence and there is none out there.  Can you blame anyone for not having confidence after all the years of credit expansion, easy money and free spending? What do you expect?  We would be able continue to spend at a pace not even imaginable just 20 years back and succeed?  Will the policies ever get reeled in? We have chosen to inflate our way out of it and the Federal Reserve is left with no answer except to print more dollars. The strategy to inflate our way out of the deep recession we are currently in will culminate with the ultimate demise of the U.S. Treasury market and the U.S. dollar.  Large investment flows have been flooding into the U.S. dollar but we have seen that trend reverse this week. This rally is over and we will see the U.S. dollar get demolished in the midterm and long term.  Rick Santelli, said it best, “it is the tallest midget in the room”.

I turn my focus and investors to Gold.   This market is an absolute bull market and has been for 10 years now.  I believe the talk of a bubble is absolutely false.  If you look back to all of the bubbles that have popped what you see is extreme volatility when the top is hit.  We have yet to see any volatility in gold and it has done nothing but built an impressive base technically for 10 years with higher highs and higher lows alongside heavy volume.  A short term move to the downside is possible to 1170 but there aren’t any sellers on any level in gold.  Whenever it dips 10-15 dollars we see more buying right away. So until we break the 5 month uptrend I am no way selling my gold.  I am a long term investor though and always have been.  If we are able to retest and break 1250 I believe 1320 will be hit very quickly.  Ultimately 1500 will be broken through by year end.  Over the long term, 12-24 month forecast, 2000 per oz gold will be met with ease.  Central Banks globally have switched from being net sellers of gold to net buyers.  This is a huge change historically and very bullish.  The global production cannot keep up with demand.  The South African Rand Refinery has seen an increase of 50% in coin demand last month alone alongside an 86 year low in production, yet one more example of the bullish nature of Gold.

I stand firm in my belief that Gold will continue to trend higher because of the lack of faith in fiat currencies. The Dollar has been going down for the last decade and has gone down by about 30% since its high. The euro is in a major down trend due to the European contagion spreading and has just begun.  Gold is the currency of kings and has weathered every single economic storm known to man.  It has survived every major war and will always be a store of value to protect your wealth.  If you look back in history you will see that every paper currency in the history of mankind has ultimately devalued to nothing and gone to zero.   Protect your wealth and buy Gold.  The enormous web of uncertainty permeating throughout the world will continue to drive Gold higher and ultimately lead to tremendous gains in your portfolio.

Anthony Pulieri is the Chief Investment Adviser to Joseph Glenn Commodities.  For more information please CLICK HERE NOW.

Pot Calling the Kettle Black – WND (WorldNetDaily) Commentary from Dan Mangru June 2, 2010

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From WorldNetDaily

http://www.wnd.com/index.php?fa=PAGE.view&pageId=155313

It’s probably not a very politically correct thing to say. But when I saw this piece of news a short time back it was the first thing that came into my mind.

I saw the headline on Bloomberg: “Bernanke Says U.S. Should Tackle Debt.”

Apparently our friend, Federal Reserve Chairman Ben Bernanke, is warning that U.S. budget deficits threaten the nation’s long-term economic health and should be addressed soon.

Yeah, Can you believe it?

Now you probably understand the title for this article.

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Nobody has done more to increase the deficit of the United States in our entire history than Mr. Bernanke.

Can you say bank bailouts?

Ben Bernanke and his partners in money printing have orchestrated the biggest financial spending spree in U.S. history. To date, Bernanke, Treasury Secretary Tim Geithner, and their associated partners have doled out a whopping $4.6 trillion of your hard earned taxpayer dollars to Wall Street banks and toxic mortgages. Even worse, according to sourcewatch.org, there’s $14 trillion that the U.S. taxpayer is at risk for because of these bailouts.

Editor’s Note: For the complete article CLICK HERE NOW.

Florida Senate President Mike Haridopolos To Appear As Guest Panelist on The Mangru Report TODAY at 5:30 p.m. May 29, 2010

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Incoming Florida Senate President Mike Haridopolos will be a guest panelist today on The Mangru Report.  You can tune in to watch the show at 5:30 p.m. today and Sunday on Fox Business Network.  Also appearing on the Mangru Report Panel of experts are John Browne of Euro-Pacific Capital, and Anthony Pulieri of United Bullion Group.  During today’s episode the panel will discuss sending tax dollars to Greece, the value of your home for retirement, and whether the U.S. dollar will remain the reserve currency.

Also in case you missed last week’s episode, here’s the panel discussions on Florida Governor Charlie Crist’s immigration plan to save Social Security (Retirement Watch), and GM’s government payback fraud (War on Your Dollar).