Silver
The Greatest Episodes of Market Manipulation…Is Silver Next?
Market manipulation has a long and storied history.
From the Tulip Mania of the 1600s all the way to the recent housing bubble, market manipulators have employed a wide range of tactics to lighten the wallets of unsuspecting investors.
And even though market manipulation is prohibited in the U.S. under a section of the Securities Exchange Act of 1934 – it's as American as apple pie.
Everyone from high-ranking government officials to investment bankers have been caught with their hands in the cookie jar.
The list includes scofflaws like Ivan Boesky, Michael Milken, and Jack Abramoff.
Jim Cramer, the host of CNBC's "Mad Money," said he regularly manipulated the market when he ran his hedge fund, calling it "a fun…and lucrative game."
Not surprisingly, a recent study found that those closest to the information loop -corporate insiders, brokers, underwriters, large shareholders and market makers – are most likely to be the perpetrators.
To give you an idea of how things work, here are three notorious examples of market manipulation.
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Five Savvy Ways to Conquer the Wall of Worry
If you like extreme risk and consider living on the edge to be "normal," today's column isn't for you.
Today I'm writing to the millions of investors who are completely terrified by the prospect of what's next and who simply want their faith restored – not to mention their investments.
To all of them I would say: You are not alone and you're not wrong to be apprehensive.
Our political situation is an embarrassing train wreck, our national debt looks like a one way trip to financial hell, housing remains in the dungeon, unemployment is unacceptably high and Europe…oh Europe.
It's nothing short of a gigantic wall of worry.
Plus, there have been so many attempts to "fix" things that I've lost count. Throwing good money after bad is a fool's game and one that will have very real and inevitable consequences.
So what should investors do?
The Fed's War on Capitalism
Here's how I see things. The "Whitewash Ministry" has basically five options:
- Repression
- Devaluation
- Austerity
- Deflation
- Inflation
You can forget the double "d's" – devaluation and deflation.
Even though both would be the proper way for free markets to bleed out the excesses of the past, they are essentially political nukes and nobody has the willpower to touch either one of them.
The third, austerity, is being tried but only halfheartedly. Our leaders have no idea what this actually means. Since they remain completely unaccountable, there is no true incentive.
Besides, large numbers of people have figured out it's easier to be on the dole than it is to actually work, so this is another disincentive for meaningful cuts in spending.
As for inflation, this too is officially a non-starter as long as interest rates are held near zero. Unofficially, it's a different story. Most investors I know are feeling the heat of 12% to 15% a year in their wallets.
That leaves option number one – repression.
You can call it what you want, but repression is really a fancy way of saying that our government is conducting punitive monetary policy.
While they mouth off about how they want to create jobs and take care of the middle class, in reality they're eviscerating it.
Why I’m Taking Gold Double-Eagles on My Next Trip to Utah
Federal Reserve Chairman Ben Bernanke may think he has everything under control, but the truth is the monetary ground is literally shifting beneath our feet.
That's why his loose monetary policy has some U.S. states looking to get into the gold coin business.
As I'll explain later, it's why my Gold Double-Eagles are becoming even more valuable.
Because while the U.S. Constitution bans states from printing their own paper money, it does allow states to make "gold and silver Coin a Tender in Payment of Debts."
Now no fewer than 13 states are seeking approval from their state legislatures, either to issue their own currency or to explore it as an option as the Fed's printing presses spin out of control.
So why is there this big rush by states to move into gold as an alternative currency?
It's simple really.
The Trouble with Fiat Money
Fiat money, created by central banks, possesses no intrinsic value. Paper money only works as long as governments don't create too much of it.
For pieces of paper to have value, we all have to believe there won't be too many of them and that the authority creating them has the preservation of their value as its top priority.
When that confidence vanishes, the fiat currency returns to being just paper – as it did famously in Weimar Germany in 1923. Or even more catastrophically in post-war Hungary, where the last stable symbol of value, the 1931 gold pengo, became worth 1.5 octillion 1946 paper pengos.
Of course, central banks do occasionally compete for foreign depositors by offering paper currencies with more stability.
In fact, before 2000, the U.S. dollar benefited from these flows that came from all over the world, including Europe.
Now, apart from the eccentrics who swear by the Japanese yen or the Chinese yuan, flight capital is largely confined to the Swiss Franc.
Since Switzerland is a small economy, the Swiss National Bank has drawn a hard line. It refuses to allow the franc to rise above 1.20 against the euro, so even that refuge has been made less attractive.
The Attractiveness of Gold
As you would expect, the private sector and some governments have begun to look further afield, and are beginning to focus on gold in particular.
2011 Investing Strategies: Readers Turn to Silver, Avoid U.S. Dollar in the New Year
[Editor's Note: Last week we asked readers to share their 2011 investing strategies. A collection of comments is listed below, along with next week's question, "Are You Bullish or Bearish About U.S. Stocks in 2011?"]
After a year of rocky economic recovery and a mixed bag of U.S. data, market strategists are waxing optimistic about the profit prospects in 2011.
"There is still an awful lot of pain out there for sure, but if you get this creeping confidence to accelerate a little bit, it's surprising how fast things can turn," Sandy Lincoln, chief investment strategist at M&I Investment Management, told MarketWatch.
A year plagued by Europe's debt contagion, the May 6 market "flash crash" and constant fears of a double-dip recession caused many investors to keep money parked on the sidelines.
You Heard it Here First: Silver's 30-Year High is Just the Beginning
[Editors Note: For detailed investment strategies on how to play the surge in silver prices, take a look at Money Morning's 2011 Outlook report on the subject by clicking here.]
The price of silver today (Monday) surged above $30 an ounce for the first time since 1980, after U.S. Federal Reserve Chairman Ben Bernanke indicated that further quantitative easing (QE) could be on the way.
Silver futures have gained almost 70% since August, when expectations of more QE were first discussed. Since then, the Federal Reserve has set about purchasing $600 billion of U.S. Treasuries and the Fed Chairman said on Sunday that more debt purchases are "certainly possible."
The result was a rally in precious metals, which played host to investors looking to preserve their wealth against further depreciation. The price of silver topped $30 for the first time since 1980, soaring as high as $30.09 an ounce in afternoon trading.
But that's just the beginning.
Money Morning Mailbag: Soaring Gold and Silver Prices Point to Profits in Equipment & Drilling Industries
[Editor's Note: We want to hear from you! Do you have a comment, suggestion, story idea or a question? Let us know at mailbag@moneymappress.com. (**) And be sure to check back for responses to reader questions and comments.]
Gold yesterday (Thursday) continued a four-day rise soaring as high as $1,399.70 an ounce as the dollar fell for a second consecutive day.
"Gold is up primarily on dollar weakness and economic optimism," Adam Klopfenstein, a senior market strategist for Lind-Waldock, told Bloomberg. "This is very positive for gold on the future inflation front."
This week Money Morning Contributing Editor Peter Krauth showed why gold and silver are still headed for gains in the New Year, following a 2010 surge.
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