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Bret Rosenthal
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Bret Rosenthal is Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds. Bret Rosenthal is responsible for the day to day management of the Fund’s investment and business activities. Rosenthal Capital Management, LLC, is an independent investment management company... More
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  • News that Moves Markets:US Mint Wants to Change Your Coinage,GATA & Silver Backwardation,China “Attacks the Dollar”,Short Selling Issues,New CDX Index Launch 0 comments
    Mar 10, 2011 1:13 PM
     Reducing the Noise: A look at the stories that really matter

    No Silver? No Problem: US Mint Would Like To Know If You Will Accept Brass, Steel, Iron Or Tungsten Coins Instead

    United States Mint Seeks Public Comment on Factors to be Considered in Research and Evaluation of Potential New Metallic Coinage Materials

    WASHINGTON – The United States Mint today announced that it is requesting public comment from all interested persons on factors to be considered in conducting research for alternative metallic coinage materials for the production of all circulating coins.

    Alternative metallic coinage materials for the production of all circulating coins?!

    Gary’s Take: Of course the U.S. government would get here sooner or later. This is precisely the path all governments with failing economies and currencies eventually take. The Romans took this path during their decline of power, runaway inflation and final collapse. Bottom line: bad currency will always drive good currency out of existence. This is proof that physical gold/silver and all other valuable metals will go into hiding amidst price escalation. Phase III is going to be a lot of fun when it gets here….

    GATA: The trend is obvious:

    If the dollar gets too weak, run intervention in foreign currency markets. If the financial sector is in trouble, hand over trillions of dollars to bail out crooked banks, change the rules for accounting practices, and then print trillions more to buy bonds and pressure interest rates. If oil gets ‘too high’ too fast, just release strategic stockpiles and calm the market instead of encouraging domestic production to build greater domestic supply….

    …Since the backwardation started on 2/3/10, the price of silver has gone up $6.50/oz over the course of 1 month. I do not think that this is a coincidence. A case can be made that the backwardation in silver is still intensifying.

    It may be a little early in saying this, but the silver market may have permanently changed on 2/3/11. With demand exceeding supply for 20 plus years, where does JPM now come up with the silver? JPM can still blast the price of silver lower in the futures market over the short term. What will they accomplish by that? Spot shortages and increased physical demand? Until proven otherwise, 2/3/11 may have been a game changer and may be the day that the silver market permanently changed for the better.

    China “Attacks The Dollar” – Moves To Further Cement Renminbi Reserve Currency Status

    The Chinese central bank surprised with a spectacular announcement: The would-be superpower wants to handle their entire future foreign trade in yuan, not in dollars. Beijingshakes America’s claim to represent the key currency – with serious consequences for the U.S..



    The announcement was inconspicuous , but it has the potential, to permanently change the balance of power on the world currency market: China strengthens the international role of the yuan. All exporters and importers will, this year, be allowed to settle their business with their foreign partners in Yuan, the central bank said on Wednesday in Beijing.

    This will respond to the growing importance of the yuan as a global reserve currency. “The market demand for cross-border use of the yuan rises,” said the central bank. The PBoC had previously tested this plan by allowing 67 000 enterprises in 20 provinces to run their business abroad in yuan. The trade volume amounted to the equivalent of €56 billion.

    Now the amount of yuan to be extended, it should be handled much more business in Chinese currency - and less in the U.S. Chinese companies trade at present often in dollars, they are thus dependent on the decisions of the U.S. Federal Reserve to pay on it in a rising oil price and will have pay higher transaction fees than necessary. That should change now.



    Currently, the People’s Republic can hardly take yuan out of the country and even that is monitored within the boundary of all legitimate capital flows. Chinese exporters have to change a large part of their euro, yen or dollars at a fixed rate revenue in yuan. Foreign companies wishing to do business in China must do so in Yuan, they can exchange their money in the People’s Republic. Tourists are allowed a maximum of 20,000 yuan and exporting. Yuan an international market can not occur – and not on supply and demand-based exchange rate.

    Needless to say, should the yuan be seen increasingly as a reserve currency, all of this, and virtually everything else is about to change. The only question is whether or not the Yuan will cement its status at the top of the currency pyramid by allowing the backing of the currency with individual or a basket of commodities.


    A few closing observations from a man in the trenches:

    I have been trading the markets for two decades and I have never experienced such a dearth of stock available for lending. Add the four plus decades Gary has witnessed and together we can say with a fair amount of certainty something strange is afoot.

    A quick lesson in market mechanics. In order to short a stock one must first locate the shares to borrow. Once located the manager can then execute the borrow and subsequent sale of stock. Without the ability to borrow short sales are impossible. I have canvassed the stock lending desks at the key broker dealers and without exclusion all say ability to lend has collapsed and costs to borrow have skyrocketed.

    Why should this matter to you the investor? Please spare me the hackneyed regurgitation of simpleton financial news anchors who love to blame short sellers for market drops. Only a true buffoon would argue this line. Anyone in the actual business of managing money will be able to explain that the short seller sells primarily on the way up and becomes a natural buyer as the markets sell off. Said short seller buys stock to cover his position and book profits. Hence, short sellers actually help support the markets during a decline. The current absence of short sellers and the continued inability to borrow will make the next serious selloff in the markets that much more painful. I would not rule out the potential for a dramatic gap down(much like the flash crash of last May) once the sell off ensues as there will be few short sellers to cover(buy) shares to cushion the fall….

    …And on another note, watch for a credit back up in the next couple of weeks. As discussed previously on this blog, credit leads equity, so we must keep a close eye on events that may lead to a weakening of credit and subsequent equity turmoil. To wit, a new CDX index(IG 16) will launch on March 20th. An analysis of the new index by our credit guru(MJ) leads us to believe a natural widening(weakening) will occur between now and the launch. While this should be simply cosmetic equity indices are already in a fragile state therefore increased volatility should be expected.

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