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Update on Gold & Silver’s Bull Market
“The deal is expected to lead to $400 million in savings for the companies, mainly from technology and clearing costs. It will also give the combined company a larger footprint in the “lucrative business of trading in futures and options contracts.”
As an outsider with no knowledge about the details of this deal, this story struck some odd chords with me:
This was fine with the NYSE as long as lowering their profit spread produced an increase in volume, but as we can see below, volume has contracted significantly since it peaked in 2006.
From my studies of stock market history, bull and bear markets are characterized by their trading volume and day to day price volatility:
As we are examining daily trading volume, we can safely assume that increases in the BEV Plot are rising markets, while declining markets see a corresponding decrease. This is because during bull markets, the number of participants trading stocks increases, while during bear markets, people lose interest and exit the stock market for obvious reasons.
But after 2000, this 100 year pattern reversed. During the two major market declines of the 2000s, trading volume exploded, while it stayed almost constant as the market climbed from the lows of 2002 to the highs of 2007. In the two years since the lows of March 2009, the major stock indexes have seen large gains while daily trading volume has contracted by 40%. I believe these changing patterns between price and trading volume of the past 10 years are a smoking-gun that political interference and crony-capitalism, all financed with monetary inflation, now dominate the stock market.
The Bear’s Eye View of trading volume in the chart above makes it obvious how the 20th century experienced big changes in the way the stock market works. Note that from 1900 up until the bull market of the 1920s, daily trading volume moved from periods of feast to famine. This all changed after the 1942 bottom in trading volume, when declines of 30% from previous all-time highs in volume became rare events.
What changed after 1942? I can’t say with certainty, but note that the SEC was created during Roosevelt’s first term (1933-37). Each successive administration took an increasing interest in the “stability” of the stock market, and by the Reagan administration, a huge bureaucracy had been put in place to enforce “market stabilization policies.” However, the apparent “stability” achieved by Washington was only an illusion. In Mr Bear’s good time, he will prove to everyone’s satisfaction that Washington only smoothed things out in the markets by pyramiding moral hazard upon moral hazard.
Ever since the Chrysler bail-out of the 1970s, where Washington ensured the credit that banks had extended to Chrysler was not defaulted on, liquidation of failed assets has no longer been an acceptable policy. In its place, the preservation of ill-advised loans became paramount, so over the years assets held by financial institutions have turned toxic as a result. This poison runs deep; even the assets backing the US dollar now contain significant reserves of illiquid-toxic waste from Congress’s sub-prime mortgage fiasco.
Currently, I can’t find any reason to recommend risking capital in the stock or debt markets, and most likely won’t, until reality forces Washington, Wall Street and Main Street to take their massive losses like adults. The real problem the United States’ economy (and the NYSE) is having stems from the old “if it feels good do it” attitude left over from the “Summer of Love” in 1967.
The hedonist hippy drive of seeking pleasure, and avoiding pleasure’s painful consequences, for as long as Mommy & Daddy’s money lasts, can be seen in the political reasoning behind Washington’s “too Big to Fail” policy of the past few decades. But let’s get back to trading volume.
My BEV Chart above suggests one of the reasons the shareholders of the NYSE were willing to accept a 40% share of the merger with the Frankfurt exchange might be the fact that for the first time since the Great Depression, the NYSE daily volume’s 100 day moving average has declined more than 40% from a previous all-time high (BEV Terminal Zero). I marked this on the chart and you may want to take another quick look at it, as I expect that one day soon, trading volume in the stock market will collapse as it did from 1929-42.
But the actual situation is even worse than this chart suggests. Many NYSE member firms actively engage in “high frequency trading.” This hyper-trading currently produces as much as 70% of daily trading activity on the NYSE. So, it’s likely that most of the trading on the NYSE no longer produces any commissions for the exchange itself. Without the hyper-trading by the Members of the NYSE, daily trading volume would have already declined to levels last seen in the Great Depression, as much as 70% to 80% below the NYSE’s trading volume highs of 2006. This tells us that the major stock market indexes are going up with minimal retail investor participation, and that current rising stock valuations are only the result of bearded hippy Bernanke’s “if it feels good, do it” policy directive.
The televised activities on the floor of the NYSE have changed drastically over the past two decades. In the early 1990s, TV reporters standing around the floor were obvious annoyances to the stock traders, who were busy doing the exchange’s work. But today, the NYSE Floor traders now appear to be members of the leisure class on CNBC, as computerized, electronic trading programs do most of the work. I wouldn’t be surprised if years from now we discovered the only reason the floor of the NYSE had been kept open was for its value as a prop for televised financial news shows. It’s sad to consider the future prospects of the NYSE’s trading floor, a place where giants once roamed. I think Betty Davis, the old Hollywood actress from the 1930s said it best: “old age isn’t for wimps.”
So, it’s doubtful the Germans wanted anything to do with the NYSE itself. The AP story made it clear that the owners of the Frankfurt exchange really wanted direct access into the American derivative market, not a piece of the declining business occurring inside a historic brick and mortar stock exchange, and not the prestigious Wall Street mailing address. After examining the trading volume on the floor of the NYSE, it appears that the big-guys of Wall Street swapped 100% of something they didn’t really care for, in exchange for 40% of something they really DID want: access to a bigger piece of the global derivative markets.
So why in 2011 is trading stocks out – while trading derivatives is in? Because the stock market functions to finance mining, manufacturing and commerce, none of which are currently in favor with America’s “progressive policy makers.” In an America where even “Remember the Alamo” key-chains purchased at the Alamo’s gift shop have “made in China” stickers on them, do we really need a stock market to finance domestic industry?
What is needed in a world like ours is a way to hedge disastrous risks in financial assets; risks present in the fluctuations of interest rates, price volatility and foreign currency exchange rates. These risks were always present in the markets, but before the US broke the US dollar’s last link to the gold standard in 1971, high finance had no reason to spend so much intellectual capital on hedging basic market variables. The deal combining the NYSE with the Frankfurt exchange proves that today’s financial elite think of little else, because after more than 30 years of Doctor Greenspan & Bernanke’s “monetary policy,” what’s left in our financial markets other than risk of default?
So take a hint from the member firms at the New York Stock Exchange, and put a little distance between yourself and the trading floor of the NYSE, (and the NASDAQ, as well). But don’t follow them into the derivative swamp where even the “too big to fail” will ultimately get mired in toxic muck. Do yourself a favor and stock up on as much gold and silver as you can accumulate.
I expect to see silver move up from here with authority, but a BEV chart is the wrong graphic to measure silver’s actual advance, as each new 30 year high can only produce a Zero on the plot. So let’s take a look at the price of silver itself.
So far it has increased just a bit above its highs of 03 Jan, but just look at the gains from its lows of 27 Jan. How far can silver rise before the next correction? And every bull market has regular corrections! I really don’t have a clue. But if you’re thinking of buying some silver as a long term holding and you didn’t like the price anytime between January 3rd and today, I suspect you’ll really hate the price by the end of May. So to ease your pain, just bite down on the silver bullet as you exchange those increasingly worthless paper Federal-Reserve-Notes Doctor Bernanke is so proud of for some of the real stuff.
Gold is also doing quite well, but as we see in its BEV chart below, it’s hasn’t been keeping up with silver. Gold’s first correction in 2011 was only half as deep as silver’s, but still has over 2% to go to make a new Zero on its BEV plot.
The day is coming when gold, too, will see a new all-time high, printing another BEV Zero on the red line, but for the next few years, the place to be is in silver. A look at the Silver to Gold Ratio (SGR) tells the story of what is likely to come.
And what might that be? Well during precious metals * bear markets *, over time an ounce of gold will purchase an increasingly larger number of ounces of silver, and during * bull markets * in precious metals, one ounce of gold will purchase increasingly fewer ounces of silver as the bull ages.
Remember, this isn’t hard science, and the markets frequently treat such relationships more as suggestions than fixed laws. But since 1969, this relationship between silver and gold has proved an important trend to watch. We should note that ever since April 1984, an ounce of gold could always buy more than 40 ounces of silver. It’s also important to know that since 1984, TWICE the SGR challenged the critically important 40:1 line, but failed to penetrate below it. So, if the SGR does break below the critical 40:1 line, it really is a BIG DEAL!
Don’t think that I’m the only guy in the market who is watching this ratio to see if silver can drop below 40 to 1 ratio for the first time since 1984. When we see the SGR fall dramatically below its 40 line above, it will be a dramatic confirmation of gold’s ten year bull market. When the Silver / Gold ratio eventually crosses below 40, I expect to see some real fireworks in the silver market.
So, we should put to the side any thoughts of gold and silver being near the end of their bull markets until this ratio is much, much lower. At the present time, attempting to guess the final bull market price of gold and silver is a fool’s errand. We can’t even be sure the US dollar will survive a 10 ratio on the SGR chart. * IT MIGHT NOT! * Every indication I see coming from Washington is that Congress and the White House will continue cheering on Doctor Bernanke as he franticly cranks up his printing press until the world’s financial markets upchuck green ink and cotton. Also, no one knows where this ratio will bottom in the next ten years, maybe all the way down to a 1:1 ratio. Could an ounce of silver become equal to an ounce of gold in the eyes of the market? That’s certainly not impossible, and just one more reason not to wait for a major correction in silver before you start accumulating a position.
Who knows what the future will bring? Buying just 100 ounces of silver now may not make you rich, but could provide you with a good measure of security in the years to come. Stranger things have happened after a hyper-inflation, and that’s what we see happening to the US Dollar, as Doctor Bernanke continues to push the US dollar ever closer to the flames of hyper-inflation. So maybe you should buy 200 ounces of silver, or even more, and take a chance at making a small fortune!
Publishing Note: The snow in Minnesota is beginning to melt, and is leaking into my basement. So I’m using this excuse to purchase a new, more powerful computer and update my software. Some of this week’s long-term charts took my eight year old computer, and Excel 2002, 30 minutes to grind out, and that is really annoying. So, I figure that in between periods of mopping up my basement, I can move my data over from MS Office 2002 to 2010. And it might very well take a month for all of the snow to melt, and for me to figure out how to use Excel 2010.
So until my rugs downstairs dry-out in my unheated garage, I’m more likely to be thinking kindly thoughts of my readers than writing anything for them to read. Until then, I pray that all my readers stay happy, healthy and prosperous. That goes double for Herald, who weekly provides a service to all of us with his editing of my text, and triple that for “The Bunny” who not only makes my text readable before I send them off to Harold, but is * Darn Cute * as she corrects text for her man!
Peaceplan: I got this over at Lemetropole Cafe Bill Murphy (GATA) site where I am a member. You can get get a 2 week free trial and read all their great stuff over there at http://www.lemetropolecafe.com
NYSE to Merge with Deutsche Boerse
&
Update on Gold & Silver’s Bull Market
NYSE to Merge with Deutsche Boerse
&
Update on Gold & Silver’s Bull Market
NYSE to Merge with Deutsche Boerse
The Associated Press just announced the approval of the merger of the New York Stock Exchange and the Frankfurt Stock Exchange, which is owned by Deutsche Boerse. The Deutsche Boerse will get 60% of the new company, while the owners of NYSE will receive only 40%. New York Senator Charles Schumer’s major concern is that the name “New York Stock Exchange” should come first in the new company’s title. Mine is the stated reason for the merger:“The deal is expected to lead to $400 million in savings for the companies, mainly from technology and clearing costs. It will also give the combined company a larger footprint in the “lucrative business of trading in futures and options contracts.”
As an outsider with no knowledge about the details of this deal, this story struck some odd chords with me:
- Why did the owners of the NYSE accept a junior position in the new company to make the deal?
- Why is trading shares in the American stock market no longer considered a “lucrative business”?
- Why has trading business risks become more profitable than trading actual businesses?
This was fine with the NYSE as long as lowering their profit spread produced an increase in volume, but as we can see below, volume has contracted significantly since it peaked in 2006.
Bull & Bear Market Characteristics
Bear Market
Bull Market
Volume
Declining
Rising
Volatility
Rising
Declining
These Characteristics were present from 1900 to 2000, but after the “Tech Wreck” of 2000, Trading Volume’s Characteristic has Followed Volatility.
Source Dow Jones
Graphic Mark J. Lundeen
Keeping the above in mind, let’s take a look at the Bear’s Eye View of the NYSE’s daily trading volume 100 day moving average, going back to 1900. As always, a BEV plot displays information not evident in the raw data.As we are examining daily trading volume, we can safely assume that increases in the BEV Plot are rising markets, while declining markets see a corresponding decrease. This is because during bull markets, the number of participants trading stocks increases, while during bear markets, people lose interest and exit the stock market for obvious reasons.
But after 2000, this 100 year pattern reversed. During the two major market declines of the 2000s, trading volume exploded, while it stayed almost constant as the market climbed from the lows of 2002 to the highs of 2007. In the two years since the lows of March 2009, the major stock indexes have seen large gains while daily trading volume has contracted by 40%. I believe these changing patterns between price and trading volume of the past 10 years are a smoking-gun that political interference and crony-capitalism, all financed with monetary inflation, now dominate the stock market.
What changed after 1942? I can’t say with certainty, but note that the SEC was created during Roosevelt’s first term (1933-37). Each successive administration took an increasing interest in the “stability” of the stock market, and by the Reagan administration, a huge bureaucracy had been put in place to enforce “market stabilization policies.” However, the apparent “stability” achieved by Washington was only an illusion. In Mr Bear’s good time, he will prove to everyone’s satisfaction that Washington only smoothed things out in the markets by pyramiding moral hazard upon moral hazard.
Ever since the Chrysler bail-out of the 1970s, where Washington ensured the credit that banks had extended to Chrysler was not defaulted on, liquidation of failed assets has no longer been an acceptable policy. In its place, the preservation of ill-advised loans became paramount, so over the years assets held by financial institutions have turned toxic as a result. This poison runs deep; even the assets backing the US dollar now contain significant reserves of illiquid-toxic waste from Congress’s sub-prime mortgage fiasco.
Currently, I can’t find any reason to recommend risking capital in the stock or debt markets, and most likely won’t, until reality forces Washington, Wall Street and Main Street to take their massive losses like adults. The real problem the United States’ economy (and the NYSE) is having stems from the old “if it feels good do it” attitude left over from the “Summer of Love” in 1967.
My BEV Chart above suggests one of the reasons the shareholders of the NYSE were willing to accept a 40% share of the merger with the Frankfurt exchange might be the fact that for the first time since the Great Depression, the NYSE daily volume’s 100 day moving average has declined more than 40% from a previous all-time high (BEV Terminal Zero). I marked this on the chart and you may want to take another quick look at it, as I expect that one day soon, trading volume in the stock market will collapse as it did from 1929-42.
But the actual situation is even worse than this chart suggests. Many NYSE member firms actively engage in “high frequency trading.” This hyper-trading currently produces as much as 70% of daily trading activity on the NYSE. So, it’s likely that most of the trading on the NYSE no longer produces any commissions for the exchange itself. Without the hyper-trading by the Members of the NYSE, daily trading volume would have already declined to levels last seen in the Great Depression, as much as 70% to 80% below the NYSE’s trading volume highs of 2006. This tells us that the major stock market indexes are going up with minimal retail investor participation, and that current rising stock valuations are only the result of bearded hippy Bernanke’s “if it feels good, do it” policy directive.
The televised activities on the floor of the NYSE have changed drastically over the past two decades. In the early 1990s, TV reporters standing around the floor were obvious annoyances to the stock traders, who were busy doing the exchange’s work. But today, the NYSE Floor traders now appear to be members of the leisure class on CNBC, as computerized, electronic trading programs do most of the work. I wouldn’t be surprised if years from now we discovered the only reason the floor of the NYSE had been kept open was for its value as a prop for televised financial news shows. It’s sad to consider the future prospects of the NYSE’s trading floor, a place where giants once roamed. I think Betty Davis, the old Hollywood actress from the 1930s said it best: “old age isn’t for wimps.”
So, it’s doubtful the Germans wanted anything to do with the NYSE itself. The AP story made it clear that the owners of the Frankfurt exchange really wanted direct access into the American derivative market, not a piece of the declining business occurring inside a historic brick and mortar stock exchange, and not the prestigious Wall Street mailing address. After examining the trading volume on the floor of the NYSE, it appears that the big-guys of Wall Street swapped 100% of something they didn’t really care for, in exchange for 40% of something they really DID want: access to a bigger piece of the global derivative markets.
So why in 2011 is trading stocks out – while trading derivatives is in? Because the stock market functions to finance mining, manufacturing and commerce, none of which are currently in favor with America’s “progressive policy makers.” In an America where even “Remember the Alamo” key-chains purchased at the Alamo’s gift shop have “made in China” stickers on them, do we really need a stock market to finance domestic industry?
What is needed in a world like ours is a way to hedge disastrous risks in financial assets; risks present in the fluctuations of interest rates, price volatility and foreign currency exchange rates. These risks were always present in the markets, but before the US broke the US dollar’s last link to the gold standard in 1971, high finance had no reason to spend so much intellectual capital on hedging basic market variables. The deal combining the NYSE with the Frankfurt exchange proves that today’s financial elite think of little else, because after more than 30 years of Doctor Greenspan & Bernanke’s “monetary policy,” what’s left in our financial markets other than risk of default?
So take a hint from the member firms at the New York Stock Exchange, and put a little distance between yourself and the trading floor of the NYSE, (and the NASDAQ, as well). But don’t follow them into the derivative swamp where even the “too big to fail” will ultimately get mired in toxic muck. Do yourself a favor and stock up on as much gold and silver as you can accumulate.
Update on Gold & Silver’s Bull Market
As predicted in my weekly reports, silver knocked out another Bear’s Eye View ZERO, or in other words, on Thursday 17 Feb 2011, silver took out its former post 1981 high. This record didn’t stand long as Friday the 18th took it out again with another new post 1981 record high. Seeing the price of silver move from a 30 year high, to a 14% correction, and then snap back to two new 30 year highs * in only 33 trading days * is an impressive display of power by the silver bulls.
So far it has increased just a bit above its highs of 03 Jan, but just look at the gains from its lows of 27 Jan. How far can silver rise before the next correction? And every bull market has regular corrections! I really don’t have a clue. But if you’re thinking of buying some silver as a long term holding and you didn’t like the price anytime between January 3rd and today, I suspect you’ll really hate the price by the end of May. So to ease your pain, just bite down on the silver bullet as you exchange those increasingly worthless paper Federal-Reserve-Notes Doctor Bernanke is so proud of for some of the real stuff.
Remember, this isn’t hard science, and the markets frequently treat such relationships more as suggestions than fixed laws. But since 1969, this relationship between silver and gold has proved an important trend to watch. We should note that ever since April 1984, an ounce of gold could always buy more than 40 ounces of silver. It’s also important to know that since 1984, TWICE the SGR challenged the critically important 40:1 line, but failed to penetrate below it. So, if the SGR does break below the critical 40:1 line, it really is a BIG DEAL!
Don’t think that I’m the only guy in the market who is watching this ratio to see if silver can drop below 40 to 1 ratio for the first time since 1984. When we see the SGR fall dramatically below its 40 line above, it will be a dramatic confirmation of gold’s ten year bull market. When the Silver / Gold ratio eventually crosses below 40, I expect to see some real fireworks in the silver market.
So, we should put to the side any thoughts of gold and silver being near the end of their bull markets until this ratio is much, much lower. At the present time, attempting to guess the final bull market price of gold and silver is a fool’s errand. We can’t even be sure the US dollar will survive a 10 ratio on the SGR chart. * IT MIGHT NOT! * Every indication I see coming from Washington is that Congress and the White House will continue cheering on Doctor Bernanke as he franticly cranks up his printing press until the world’s financial markets upchuck green ink and cotton. Also, no one knows where this ratio will bottom in the next ten years, maybe all the way down to a 1:1 ratio. Could an ounce of silver become equal to an ounce of gold in the eyes of the market? That’s certainly not impossible, and just one more reason not to wait for a major correction in silver before you start accumulating a position.
Who knows what the future will bring? Buying just 100 ounces of silver now may not make you rich, but could provide you with a good measure of security in the years to come. Stranger things have happened after a hyper-inflation, and that’s what we see happening to the US Dollar, as Doctor Bernanke continues to push the US dollar ever closer to the flames of hyper-inflation. So maybe you should buy 200 ounces of silver, or even more, and take a chance at making a small fortune!
Publishing Note: The snow in Minnesota is beginning to melt, and is leaking into my basement. So I’m using this excuse to purchase a new, more powerful computer and update my software. Some of this week’s long-term charts took my eight year old computer, and Excel 2002, 30 minutes to grind out, and that is really annoying. So, I figure that in between periods of mopping up my basement, I can move my data over from MS Office 2002 to 2010. And it might very well take a month for all of the snow to melt, and for me to figure out how to use Excel 2010.
So until my rugs downstairs dry-out in my unheated garage, I’m more likely to be thinking kindly thoughts of my readers than writing anything for them to read. Until then, I pray that all my readers stay happy, healthy and prosperous. That goes double for Herald, who weekly provides a service to all of us with his editing of my text, and triple that for “The Bunny” who not only makes my text readable before I send them off to Harold, but is * Darn Cute * as she corrects text for her man!
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