Bill Cara's Blog for Nov 2, 2011

Accumulation Zone: Monthly 8, Weekly 4, Daily 1
Distribution Zone: Monthly 9, Weekly 1, Daily 0

Good morning.

07:00 MBA Mortgage Index (0.2%)
07:30 Challenger Job Cuts (+12.6%)
08:15 ADP Employment Change (110K)
10:30 Crude Inventories (1.826M)
12:30 FOMC Rate Decision

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CSCO - Cisco coverage assumed with a Market Perform at JMP Securities.

INTC - Intel downgraded to Market Perform from Outperform at BMO Capital.
BMO Capital's checks indicate Apple (AAPL) and MIcrosoft (MSFT) are using competitor ARM's (ARMH) latest architecture ARMv8, which could impact Intel's (INTC) multiple longer-term. Note the firm upgraded ARM to Outperform from Market Perform.

NKE - Nike upgraded to Conviction Buy from Neutral at Goldman due to its market leadership, sales growth, and Summer Olympics catalysts. Price target raised to $108 from $89.

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(Oct 25, 2011) - “We remain confident that we have the resources and expertise to continue to successfully manage these exposures to what we believe will be a positive conclusion in December 2012.” - Jon Corzine, CEO of MF Global.

October 31, 2011 - MF Global files for bankruptcy.

(Reuters) - U.S. private-sector employers added 110,000 jobs in October, beating economists' expectations, a report by a payrolls processor showed on Wednesday.

Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 101,000 jobs. September's private payrolls were revised up to an increase of 116,000 from the previously reported 91,000.

The report is jointly developed with Macroeconomic Advisers LLC.

(Reporting by Leah Schnurr, Editing by Chizu Nomiyama)

http://www.reuters.com/article/2011/11/02/us-usa-e...

El Gallo Complex Drilling Continues to Intersect Exciting Near Surface Silver Mineralization at Palmarito Plus Core Twinning Delivers +49% Increase in Silver Grade

TORONTO, ONTARIO, Nov 02, 2011 (MARKETWIRE via COMTEX) -- US GOLD CORPORATION UXG +0.65% CA:UXG +2.43% is pleased to announce results from 1) exploration drilling and 2) core twinning at Palmarito, part of the El Gallo Complex in Sinaloa, Mexico. Exploration drilling continues to intersect exciting mineralization, designed to expand the open pit resource. Highlights include: 140.0 grams per tonne (gpt) silver over 14.0 meters (m), 180.7 gpt silver over 8.7 m and 384.2 gpt silver over 4.7 m. Results start from surface. In addition, 39 of 61 historical reverse circulation holes have been twinned with core. Results to date show that the grade-weighted average has been increased to 157 gpt silver from 106 gpt silver (+49%) (Table 2).

"Our team has done a fantastic job at Palmarito. Drilling this year has transformed the deposit from a minor source of future production into an increasingly important asset for US Gold in Mexico. The silver grades we are encountering are well above the current resource average," stated Rob McEwen, Chairman and CEO.

PALMARITO: GOOD GRADES, NEAR SURFACE, EXPANDING POTENTIAL

On September 8th, US Gold announced that a core drill was modified in order to access a high priority, but difficult to access exploration target. The initial hole from the area was encouraging: 263.2 gpt silver, 0.3 gpt gold over 6.5 m, with the mineralization starting at surface. Holes PMX-198, 195 and 191 were recently completed to further test the area's potential. PMX-198 was located 55 m southeast of the initial result and PMX-195/191 were located approximately 20 m to the southwest (Fig 2-5). Each hole continued to intersect exciting near surface silver mineralization, highlighting the areas potential. Drilling to further extend the mineralization is underway.

More:

http://www.marketwatch.com/story/el-gallo-complex-...

€4.4 billion bond due Friday, November 11.
http://on.ft.com/v1phHu

EFSF scales back Irish bond (from yesterday)
http://on.ft.com/tuvESR

FST - Shares are trading sharply higher on a Buy-from-Neutral upgrade at Bank of America-Merrill Lynch.

GDXJ, HL, BAL.
Yesterday was a better entry point but I was not as nimble as Bill.
We should be OK for a few day, not sure longer term.

MarketWatch is sponsoring an ask Ben Bernanke a question contest for his afternoon press conference.

Some of the questions posed so far are:

"Why do you steal from prudent savers by keeping interest rates below the inflation rate?"

"By what authority is the US Federal Reserve granted the right to pledge US taxpayer money to bail out banks in Europe?"

"Sir, Could you please explain how the Federal Reserve benefits the American people?"

"What is the stock market tomorrow? up or down?"

"How long would it take you to hit the ground if you jumped out your bedroom window?"

"Noose or guillotine?"

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Ask your question here: http://is.gd/uY8ndD

"Unless the European Central Bank step in very soon and on a massive scale to shore up Italy, the game is up. We will have a spectacular smash-up."

hmmm I am wondering if this is helping to prop up precious metals. silver up nearly 5% - traders starting to get whiff of an ECB pledge to stem the bleeding? LOL that'd put paid to Draghi's hawkish pretenses (an image he needs to maintain for at least a time to appease the Germans) and make the Euro look like the old Lire, in order to save his former boss Berlusconi. The irony is delicious.

(Les is going to love this one...)

http://goo.gl/Mis6Q

U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults.

Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose by $80.7 billion to $518 billion, according to the Bank for International Settlements. Almost all of those are credit-default swaps, said two people familiar with the numbers, accounting for two-thirds of the total related to the five nations, BIS data show.

The payout risks are higher than what JPMorgan Chase & Co. (JPM), Morgan Stanley and Goldman Sachs Group Inc. (GS), the leading CDS underwriters in the U.S., report. The banks say their net positions are smaller because they purchase swaps to offset ones they’re selling to other companies. With banks on both sides of the Atlantic using derivatives to hedge, potential losses aren’t being reduced, said Frederick Cannon, director of research at New York-based investment bank Keefe, Bruyette & Woods Inc.

“Risk isn’t going to evaporate through these trades,” Cannon said. “The big problem with all these gross exposures is counterparty risk. When the CDS is triggered due to default, will those counterparties be standing? If everybody is buying from each other, who’s ultimately going to pay for the losses?”

FULL ARTICLE:
http://bloom.bg/ufF8Tu

They are offering 1 oz Gold Eagles for $3325 on their website. Incredible...

BillySundance -

I'm holding my UXG at about a 20% loss. Looks cheap here to me. Nothing has changed. Gold will soar. Euro will collapse. This is an outstanding company under stellar leadership. Jesse Livermore said he made the most money sitting on his hands. Stick with convictions and take the emotion out of it.

FD: Long UXG

Want a cup of coffee to go with that understatement?

http://www.bloomberg.com/news/2011-11-02/eu-bank-r...

California Kid,

"(Reuters) - U.S. private employers added more jobs than expected last month, while planned layoffs dropped sharply, underscoring the view the economy is on a path of slow growth."

With any of these reports keep in mind the numbers are as phony as the US dollar.

There is no mention of full time or part time, permanent or temporary and nothing about the pay per hour.

As for the "planned layoffs" — we need to know the condition of the companies not planning to lay off people. In the company where my youngest son works any further layoffs would mean closing the doors and turning off the lights.

There are absolutely NO Government numbers which can be trusted. I have no idea how much of this company's data is government based – do you?

You may possibly be able to trade the news, but don't blink.

Grym

Edit:
From Macroeconomic's website it seems they advise governments. Any possible conflict of interest in such reports to the rest of us? Remember how agencies rated all the bank crap as AAA?

"Over its 25+ year history, Macroeconomic Advisers has become the most trusted source for US macroeconomic analysis. MA combines a rigorous, model-based approach with its keen judgment to produce award winning forecasts and insightful commentary. Market participants, central banks, and government agencies throughout the world rely on MA to help them understand the U.S. economic outlook and its interaction with policy and financial markets."

Nervous Nellies are all over the place! Relax! UXG has dropped substantially. If you were a trader, you would have had stops in place or went with the daily flow and scalped it. It all depends upon your investment philosophy. You may be like my wife who buys and holds! Unfortunately, she has been getting clobbered recently.
The current price, sub $5.00, seems reasonable. However, it has a bottoming range of $3.70 -$4.90 which is quite wide for a sub $5 stock. In fact it reached a low of $3.23 last month. If you paid over $5, I feel your pain.
To remain upbeat, I remind you that they will be going into production in Q2 next year in Mexico. They will also be merging with Minera Andes by yearend. They are also developing a mine in Nevada which is about 1-2 years away from production. Just keep the faith and you'll be ok.
You mentioned you misfortune with ECU. I recently bought AUMN, Golden Minerals, which took over ECU. This stock could be a four bagger but you do your own due dilligence. The officers are former executives of Cyprus Amax. I was a former manager of Amax before Phelps Dodge took them out. This is a very good executive team. They happen to have their headquarters in Golden, Colorado which is where I went to school at the Colorado School of Mines. I suggest you go to their website to find out about AUMN.
My current positions are UXG, AUMN and Rubicon. All are showing a profit but I am keeping a tight leash! Unlike my wife, I am not a buy and hold. Good luck.

In view of morning discussions, a group of friends are into this company, the CEO Randy Reifel being a Vancouver man. I see that they have 17m oz M&I, but the mine will not come cheaply. I know nothing about them, except they trade thinly, big bid ask spreads, and they want to be taken out. Has anyone done any work on this one? $500m mcap needing $3b to build a mine. Looking for a buyer.
With many deposits lying around proven, how many will get the coveted buyout and at what price?
Any insight would be appreciated.

Thanks BH. Their earnings in Q3 were slightly above expectations and that's the third upgrade on it in a month. I'm still holding it.

One thing the Bernank doesn't comment on is the risk the Fed takes on with the FDIC in OUR name.
http://www.bloomberg.com/news/2011-10-18/bofa-said...

http://seekingalpha.com/article/301260-bank-of-ame...

Just imagine what happens if these things get triggered.
It will make MF look like a flea on a flea on Madoff's a@@.

While I was at Seeking Alpha I noticed a nice story about the banks gobbling up platinum. Anyone seen the price of platinum lately? A nice industrial metal selling below gold.

Fleck... http://www.kingworldnews.com/kingworldnews/Broadca...

Cannot believe I heard him say that part of our economic difficulty was just "Bad Luck".

http://tradinglog.realitytrader.com/2011/11/multi-...

Here's the link. For some reason I'm having quality issues with the video. I also supplied images from the first few days of the week. If you have any questions, let Vad know. I'm sans prop-firm currently, so I'm a bit unleashed from the screen.

Nemo

That Greece is a moon of Saturn and that moon mood swings influence earthly money streams and worldwide GDP's estimates. How absurd!

Use this silly drama and trade against the grain. The eurozone is no more a country than the equator...Know that. The 'old country' will work it out or not on their respective political timetables. Our Fed done said today that they will drop nuclear money bombs at the drop of a hat.

Arab 'springs', Jap nuke meltdowns, oil well blow-outs in the gulf, national debt limit debates, 'occupy somewhere' and the comedy of our impending elections are but transient distractions.

Trade the Bernanke put and Euro-angst. After all, Gutenberg was a kraut. Movable type and movable decimal points can create 10's of trillions of whatever coloured monoply chits necessary to assuage the peasants need for 'more, please'

Universal sufferage has become a cruel joke. Who will ever vote themselves a lessor piece of the tragedy of the commons?

Worth reading in its entirety, but the following points sum up his argument:_

- A crucial element of the (EFSF) plan is the ability of Spain and Italy to take action to improve their finances and maintain access to funding at reasonable cost

- Spanish debt levels are still rising. Regional finances are even worse.

- In a letter to the newspaper Il Foglio , Prime Minister Berlusconi supported growth and development but rejected austerity measures, declaring that the word ''isn't in my vocabulary''. This conflicts with Italian commitments to the EU. A commitment to increase the retirement age in Italy from 65 to 67 by the year 2026 highlighted the lack of urgency and intent of the reforms.

- The European debt endgame remains the same: fiscal union (greater integration of finances where Germany and the stronger economies subsidise the weaker economies); debt monetisation (the ECB prints money); or sovereign defaults.

- The key element of the October 27 plan was the unwillingness or inability of Germany and France to increase the size of their commitments.

- Germany cannot or will not go above €211 billion ($A280 billion) in guarantees for the bailout funds already committed - about 7 per cent of its GDP. Fiscal integration would have a higher cost than Germany is willing to pay or can sustain without affecting the country's creditworthiness. Germany's GDP is around $US3.2 trillion ($A3.1 trillion) and its debt to GDP ratio is around 75 per cent. Supporting the financial needs of weaker countries would stretch its financial abilities.

- France is at the limit of its financial capacity. France's GDP is around $US2 trillion and its debt to GDP is around 82 per cent.

- Unless restructuring of the euro, fiscal union and debt monetisation are removed from the verboten list, sovereign defaults may be the only option available.

Read more: http://www.smh.com.au/business/without-wings-sans-...

Buck is back to 77 again, and the minis are into positive territory at 1239 after being down to 1213 not long ago.

Either the big machines are running stops at both ends, or Vad's concept of the cat always being on the wrong side of the door is correct. Or maybe both. If I were more enthusiastic about day trading I'm might be able to make money trading these crazy swings, but - fundamentally I'm not.

http://on.ft.com/sznEij

MF Global’s fall puts spotlight on CME Group

By Gregory Meyer and Hal Weitzman

The case of the missing customer funds at MF Global is putting a spotlight on the failed broker’s de facto supervisor, CME Group.

CME, the largest US futures exchange operator, is also the designated self-regulatory organisation for more than 50 futures brokers, including MF Global. As such, CME had direct responsibility for making sure MF Global’s books were square.

MF Global filed for bankruptcy protection on Monday, sending its customers scrambling to extract cash from accounts and move positions to other brokers.

Craig Donohue, CME chief executive, said this week that MF Global was “not in compliance with CFTC and CME customer segregation requirement”, suggesting the company may have failed to follow a key commandment of futures broking: to segregate customer accounts from house accounts.

Federal authorities, including the Commodity Futures Trading Commission, are investigating.

On Wednesday, CME clarified that it had audited MF Global’s segregated customer funds last week and found them in compliance. However, it added: “It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection insofar as MF Global did not disclose or report such transfers to the CFTC or CME until early morning on Monday October 31 2011.”

MF Global refused to comment on CME’s statement.
CME’s dual role puts it in a delicate position. MF Global, according to its website, was the top broker by volume at CME’s metals and energy exchanges in New York and in the top three at its Chicago exchanges. CME’s main source of revenue is clearing and transaction fees.

Brokers themselves have questioned letting exchan-ges be overseers. “Given their strong market knowledge and proximity to the trading markets, they provide the best forum for addressing many of the futures markets’ oversight functions,” the Futures Industry Association said in a 2004 letter to the CFTC. “However . . . we are concerned about potential conflicts of interest.”

The hole in MF’s accounts was discovered as regulators and abortive buyer Interactive Brokers scoured its books over the past week. Since at least last Thursday, MF Global told regulators that all the money was accounted for.

It was only after the bankruptcy filing that MF Global’s general counsel communicated in writing to the regulators that there were insufficient funds in the segregated accounts, according to people familiar with the matter.

The MF Global case raises the question of whether CME was vigilant enough in warning that the broker-dealer might collapse. As is normal practice, when MF’s customer segregated funds at CME fell below acceptable levels, the company was given time to top up those accounts.

“This certainly suggests there’s some kind of deficiency in their oversight,” says the head of a Chicago proprietary trading firm.

Experts say the sudden nature of MF Global’s demise meant a quickly shifting financial picture for regulators.

“My guess is this happened so fast, they lost track of it,” says Michael Greenberger, a former senior CFTC official and law professor at the University of Maryland.

The segregation of customer funds has been enshrined in federal law since the 1930s. Designated self-regulatory organisations such as CME must enforce minimum financial and reporting requirements for members such as MF Global. Futures brokers are required to calculate by noon each day that they are in compliance with customer funds custody requirements.

Still, “no outside regulator looks at seg funds on a day-to-day basis”, says a senior executive at another US futures brokerage.

MF’s collapse also highlights weaknesses at the CFTC, which regulates CME. Collin Peterson, who helps oversee the CFTC as the top Democrat on the House agriculture committee, says he will call for a probe into how the agency supervised the broker. rule that would mandate segregated accounts for swaps customers.

http://www.spiegel.de/international/europe/0,1518,...

"It was a serious situation, it wasn't easy," said Merkel. "We will defend the euro. We want to do that together with Greece. But we are not going to jeopardize this great project of unity. That is our priority." Just to ensure that her warning was understood, Merkel added: "We respect the decision of the Greek people. But we are not going to give up the euro."

Merkel says "screw the peasants, we decide the fate of this project on behalf of... (fill in preferred oligarchy)

"We made Papandreou ... aware of the fact that his behavior is disloyal," said Jean-Claude Juncker, head of the 17-member euro group...

Damn, Orson Welles was making this stuff up only 50 years ago.

"Giving the people a voice is always legitimate," Sarkozy reportedly said. "But the solidarity of all the euro-zone countries only takes hold when everyone agrees to make the necessary efforts."

no question of giving voice to the people of France that they must shoulder more of the burden when their state is already stuffed...

Papandreou is now expected to execute the referendum by Dec. 4 or 5. Merkel and Sarkozy reportedly advised the Greek prime minister he should tailor the referendum to be a question of whether Greece should remain a part of the euro zone. It is a likely that a majority of Greeks would vote "yes" if that were the question posed. But the word in Athens is that the Greeks want to put the rescue package itself up for a vote. The bailout is deeply unpopular with Greek voters because of the tough austerity measures it entails.

LOL like training rats to press the 'right' button. Keep buying gold and land. The CME group has shown us once again the state of the US electronic markets. As Kaimu says, it all works etc...