GOLD AND SILVER CONTINUE TO TREND HIGHER IN THE OPTIONS EXPIRY PERIOD

The options expiry period saw gold and silver advancing substantially instead of the expectations of takedown by the bullion banks.

However miners lost some ground despite the gold and silver advancing. Most likely many traders see this as an opportunity to cash out the miners which have risen substantially over the last 2 months.

Some blamed a takedown in the gold ETF, GLD by institutional funds to jolt the confidence in gold and silver to stem the rise of the precious metals further, which also impacted the miners as well.

Nevertheless, a correction is good for the miners as they have been on a tear recently. Last year, the bullion banks together with the BIS sold more than US$10B worth of gold to knock gold off from its high in the US$1,300 - US$1,360 range but gold continue its advance. Is it money wasted?

Somehow I tend to believe that each attempt to suppress the price of gold and silver requires an even greater amount of shorts to cover the previous shorts, which becomes a growing vicious cycle and put the banks in dangerous positions. On top of that, each major short will emerge a major buyer who will demand physical gold in delivery, gold which the western banks do not have. In the previous takedown after the election, it was rumoured that the major buyer was the PBOC.

Why do I say that the western banks have little physical gold left? The Bundesbank of Germany reported that they have repatriated most of their gold back into the country but the gold bars have to be recast. Recast? Because the gold bars that they received belongs to others while those that they sent for safekeeping are no longer available in their original form. This is a clear sign that the western banks are running short in physical gold.

In the past few months, hundreds of tonnes of gold have moved from the western banks vaults to Switzerland where they are melted and recast into kilobars before being sent to an eastern nation, most probably China, in which case supports the theory that China has emerged as a major buyer during the preivous takedown. It will be interesting to watch next week as

Trump will be addressing the Congress on Tuesday, the option expiry on Monday for the COMEX and LBMA option expiry on Tuesday.

A looming debt ceiling debate in March could set the tone for the US economy and Trump's economic plan.

WHY THE S&P IS WAY OVERVALUED

This is a very interesting chart from Wolfstreet.
Despite the S&P Index at record levels, the earnings have pretty much remain at the Q4 2011 level. Compared to that period, the S&P is trading at 87% higher. 
Now, if you look at the light blue bars, the amount of share buybacks have actually increased from the period of Q4 2011 to the present by more than 30%!
The worrying part is that the share buybacks are being fueled by companies taking in even more debt to fund the purchases. 
So looking at the chart we can surmise that:
1) The S&P is overvalued by 87%. To fall back into the same valuation the S&P index have to fall by more than 45% from its current level!
2) Because much of the buybacks are driven by debt, further increase in interest rate will erode earnings. The anticipation of higher interest rate is also pushing the USD stronger. 50% of the S&P companies derive their earnings from overseas. Thus, a stronger USD will weaken earnings. This will be a double whammy on the stocks.  
3) The S&P is driven earnings using non-GAAP method. If the GAAP is applied, companies which have positive earnings will suffer losses. In part Wall Street rigs the game by pushing the earnings estimates lower so that it will be an easy beat, and thus beneficial to the stocks.
One of the ratios that I am always against is using the Debt to EBIDTA Ratio which often paints a brighter picture of a company's finances since it excludes, Interest Payments (ironic with so much debt at hand), Depreciation (capital invested in plant and equipment reduce in value over time) and Tax (like the government is going to let you get away with it). never mind the Amortisation which is subjective. So if the EBIDTA base is large (with so many items being excluded), then the ratio will be small. Isn't that a rosy picture!
But if you include all these items, the base is going to be small and thus the ratio will be big, and suddenly the picture turns ugly.
So it pays to study the financial statements diligently.
Meanwhile despite a series of takedown in gold and silver, the prices still remain stubbornly where they were.
However, with Thursday through Monday being in the options expiry period look out for more attempts to drive down the prices of gold and silver. With silver shorts being at high levels with physical being in demand, and production trailing demand, it will be an interesting few days ahead.

THE GREAT DISCONENCT

THE DOW vs REVENUE DISCONNECT

I have mentioned a few times the disconnect between the indices valuation vs revenue and earnings. With the Dow trending at record highs, here's a dose of the reality of what's happening (source: Wolfstreet).

This is despite all the billions of borrowed money spent on acquisitions and management's fantasy on prospects of greater revenue.

THE NON-FARM PAYROLL DISCONNECT

The market cheered when the non-farm payroll shot up to 227K jobs, way above the expected 175K jobs.

Two things stood out. Unemployment edged up to 4.8% from 4.7% earlier. If the jobs were so great why was unemployment edging up. Peter Schiff, well known economist and writer put it simply as there being more people re-entering the labour force.

The US has a peculiar way to classify unemployment. If you are not looking for a job, you are not part of the labour force. So this means that now more people are starting to look for jobs and with 95M Americans who can work but not working, the jobs have to grow greater than 227K jobs a month to bring the unemployment rate back down.

The other thing is the hourly wage which grew a measly 0.1% vs expected 0.3%. So with slower wage growth the Fed will have a tough time to convince the market that an interest rate hike is on the cards.

The Fed may not be able to hike interest rate as many times as it wants. In which case, why the euphoria that higher interest rate is good for the economy in the first place? Can anyone see the disconnect here? 

Truth is, that is how Wall Street rig the game. Good news is good news and bad news is also good news. To win the game, you have to go ahead of the curve.

Here are two charts (source Zerohedge) which I think reveal the current state of affairs. US productivity, which remains in decades low despite the uptick and the hourly wage which continues to remain in a multiyear low. That is why the Fed is faced with a daunting task ahead. To raise rate to 3%, productivity has to grow and wage earners must have the capacity to sustain in a higher interest rate environment.

THE 'ECONOMIC IS AWESOME' DISCONNECT

Oil price fell when the API released a report on continual buildup of gasoline over the week. What is surprising in this report is not the increase in supply but the FALL IN DEMAND. Look at the chart below (source: Zerohedge)

Demand falls because consumers are travelling less or shipment of goods via land is falling which according to Goldman Sachs only happens in a RECESSION.

And yet the major indices and crude oil continue to tread higher. This is beginning to look like a dotcom bubble where fundamentals take a back seat and greed takes over.

In the latest 12 month rolling period in tax collection, the Treasury Department reported that receipts fell 0.3% on an annual basis (see chart, source: Zerohedge).

As the chart shows, each time the receipts fell into negative territory, the US is on the cusp or already in a recession. The last time it turned negative was July, 2008.

So many indicators are pointing towards a softening economy where the 2016 GDP fell below 2015 GDP, and a rising inflation which have risen 2.6% in 2016 vs the Fed's 2.0% target. In all likelihood, we could be seeing the early signs of stagflation. 

JUDGE REVERSED JUDGEMENT ON JPM'S SILVER MANIPULAITON CASE AND UTAH INTRODUCES BILL TO MAKE GOLD AND SILVER LEGAL TENDER

Some interesting developments are taking place in the US. The Appeals Court has just reversed the judgement in favour of JP Morgan (JPM) in a civil suit for silver manipulation. The judge believed that there was ample evidence that JPM was involved in rigging the price of silver. So it is back to the lower court to embark on a fact finding mission to uncover more evidence.

JPM has accumulated almost 550M oz of silver in the last few years!

In Utah, the local government has introduced a bill to make gold and silver legal tender and transactions could be made with either. This bill will be put to vote. This is an attempt to remove the control of money by the Fed.

Both events;if JPM is found guilty for manipulation and the bill is passed could be positive to gold and silver.

SIGNS OF DANGER IN THE AUTO INDUSTRY

Here's some important charts from Zerohedge on US auto lease.

Americans are opting for auto lease to continue their lifestyle as new cars become more expensive vs leased. However the short end of it is that returning leases are putting a pressure on used car prices.

As used car prices become lower, the pressure will be on the price of new cars. So it is advisable not to invest in any auto manufacturers as this could blow up into a major crisis.

And yes, this is besides the more than US$1.1T worth of auto loans which is waiting to explode.

Charts are from Zerohedge

WHAT THE INSIDERS ARE DOING WHILE THE INVESTORS PILE IN

When the bankers and hedge funds are convincing everyone to chase the indices as Trump would be good for the economy, here's what the insiders are doing themselves.

This is a sign that you need to be extra vigilant.