Saturday, March 15, 2008
At 8;30 in the morning we got more spurious data which showed the inflation was flat i.e. up zero percent. On closer wxamination the Government stated that energy prices declined by .4% last month. Gee that is surprising. Oil last month rose from the low 80;s into the low 90's. Today oil is 110.75 so these figures are totally laughable.
However at 9;13 we got word that the Federal bank of NY and its clone,jpmorgan has given an emergency lifeline to Bear Stearns. Reuters stated that financial conditions within the company deteriorated significantly within the past 24 hrs. Everyone I talked to basically stated that this statement was totally without merit. They knew last month that they were insolvent.
Now please explain to me how 28 days of temporary money is goi ng to help these clowns? I guess their counterparties must be nervous tonight.
Yesterday we got news on the open interest on both gold and silver and they went in opposite directions. The OI rose in gold as the specs turned from sellers to buyers. The OI rose by 12000 to 503000. Silver continues to decline as most commercials are finding the heat too strong. Only the ultra 2 megashoets Scotia macotta and HSBC remain.
At 11;35 in the morning former Sec of the Treasury Rubin stated that the usa needs fuether substantial help in offsetting the crisis in the mortgage field. At noon, the respected economist Martin Feldstein stated that the usa has entered a severe recession.
Finally there is a great article by Mike Whitney in which he hypothesized that the usa is in a serious vicious circle which wil end in a systemic financial meltdown. You must read his report and it is in Midas Friday night.
In other news, the dollar sank further with the usa index falling to 71.70. The Swiss Franc rose above 1:1 for the first time ever. The yen rose to 99.9 to the dollar.
Ethiopa is in trouble tonight when they found out that their official gold is nothing mor than painted steel. I wonder if the usa bars are the same.
Number 2 son Lenny informs me that premiums on gold puts and shares continue to decline. Generally this means that the environment to purchase gold is good. They will not raid on Monday.
I will report next on Tuesday from Hong Kong. If I have a chance I may get a report to you late on Monday.
Greetings from San Francisco
have a great weekend
Thursday, March 13, 2008
Good evening Ladies and Gentlemen:
Gold closed today up by 13.10 to 992.30 and silver rose by 39 cents to close at 20.34
The open interest on gold rose quite sharply by 10,000 contracts. The new OI (open interest) is now 491300. As I pointed out to you yesterday our specs (large and small) changed from being a shorter of gold to a buyer of gold. These guys were the suppliers of paper gold the past few weeks and this allowed some of the commercials to cover. At this stage of the game, the small commercials are bailing out leaving the major commercials as the sole supplier of paper gold..defending 1000 dollar gold.
The silver OI declined by 700 contracts again on Wednesday. The new Oi is a record low this year , 161700 contracts. It is clear that all commercials are finding the heat a little too unbearable. Our two major shorts are trying to cover on both the Comex and in London. The two major shorters are Scotia Macotta and HSBC.
We have truly verified that physical gold and silver sales have totally dried up in London. It looks like the only sources for physical are the refiners and thus the miners, and the comex.
On economic news, oil finished the day close to a record 111.00 per barrel. The usa dollar tanked early and finished at its lows at 71.95.
The big news was the bankruptcy in London of Carlylle Capital. They received margin calls and they could not come up with 400 million dollars when they received margin notices.
The best way to describe the global banking problem is this:
we have a systemic margin call by the banks on the banks.
The banks has issued margin calls on hedge funds who are basically offside. Because of massive leverage these guys can never cover their huge losses on their bets. The banks need to shore up their balance sheet as their collateral is now delinquent. The regulators who see that the banks have written massive derivatives to the tune of trillions of dollars of off balance sheet junk, ( that can never be paid,) have basically issued a margin call to the banks to get their house in order which is impossible.
This is why the entire banking sector is insolvent. The derivatives initiated by the banking sector are under water big time. They have used many layers of defence and each layer that is penetrated causes an explosive derivative loss. We know that the usa index of 80.00 was the premier defence line followed by 75.00. With the usa index at 71.90, the total losses are in the trillions.
They are under water with respect to gold and silver. They are short over 16,000 tonnes of gold (500 million oz) and to boot they are short 1 billion oz of silver.
The fed has orchestrated a rescue plan. Yesterday they initiated a $200 billion swap of treasury bonds with asset backed commercial paper, CDO"s , subprime or any other type of illiquid and valueless paper. This followed a previous pledge of another 200 billion under the same format. The Fed has 825 billion of treasuries used as a backstop for the usa economy. Now almost 1/2 of this paper will be used to gobble up the garbage.
The world sensed the problems today and bid gold all the way up to 999.80 where the PPT sent out Paulsen to cool Gold's jets.
My son Lenny checked the put premiums and they were down big time with a rising gold. The chances for a raid are slim tomorrow. Gold will try to pierce the 1000 dollar market tomorrow. The resistance will be large as there are many calls written by central banks at the 1000 mark. They do not want to lose what precious little gold they have left.
On Tuesday, the Fed will lower interest rates by 3/4 of a point. Canada will also lower its discount rate. And thus, the race to zero is on.
Europe is getting a little edgy with the Euro trading tonight at 1.559 and the Swiss Franc at 1.009, basically at par with the dollar. It is very hard for Europe to trade. You will start to hear rumblings about abandoing the Euro.
Berkshire Hathaway stated today that they see increase risks in debt of cities and individual states. This is becoming very alarming!
There is much talk that the reason for the 200 billion additional bailout was to rescue one ailing bank, and many thought it is Bear Stearns. I believe it is all of them.
Commercial paper of all kinds continue to decline in quantum which signals a massive deflationary problem. This is the reason for the massive infusion of capital to offset this headwind. We are seeing a massive deflationary spiral coming in contact with a massive inflationary infusion by central bankers around the world.
Thus two headwinds coming from opposite directions hitting each other head
on!. Something has to give..
The next big scenario that will play out is the rise in bond yields. This will pierce the last big derivative balloon and the game will officially end.
I will give a detailed analysis of the weeks events on Saturday, but it will be late as I am heading off to San Francisco to visit No 4 son, Stephen who is learning this stuff . Stephen is the one who built the blogsite for me. Then I am off to China visiting all the sites there . I will be on a boat with WIFI so I will be in total communication with you, totally unlike my trip to Africa.
speak to you late on Saturday.
Wednesday, March 12, 2008
Good evening Ladies and Gentlemen;
Gold closed up by $4.90 to 979.20. Silver reversed course from yesterday and closed up by 31 cents to 19.91. Right now gold is trading at 984.00 in Japan and silver is trading at 20.18. The open interest on gold continues to decline despite huge volume and gold's rise. OI declined by 2000 contracts to 482000. Silver continues to contract and its new OI is 162400 a new low for the year. Remember that silver is rising so this means that commercials are bailing out big time. We learned today that the specs have reversed the selling of silver and have now gone to the buy side. They have been the shorters of silver for the past week and now they have joined some of the commercials bidding for silver contracts. That means that the one or two of the perennial shortsilver commercials are the only ones providing the paper.(the two biggest shorters are Scotia Macota and HSBC). Commercial failure looms big.However I doubt it will be this month. If silver survives the end of March delivery, the month of May will be a doozy!. There still remains 4 milllion oz of silver left to the delivered upon.
Economic news of the day:
I guess the three biggest stories were:
1. the decline in the dollar to a record low of 72.24 on the usa dollar index. The Euro rose to 1.552 to the dollar.the Swiss Franc is trading at 1.018 to the dollar.
2. Oil hit a record price of 110.25 per barrel.
3. Barrick skeptical on the big Pasqua Lama project.
Barrick cited taxing issues and permit issues. You guys have heard this from me before..this project will never get off the ground.
The world needs Barrick's gold to cover their shorts. Barrick has also forward sold (shorted) 9.6 million oz of the gold that they will need to come up with from other mines. This will put a huge dent in worldly supplies.
The yield on the 10 year/2 year treasuries continues to advance. This always portends inflationary problems. I pointed out to you yesterday, the big 200 billion infusion via the treasury bond swap with the banks will steepen the yield curve and cause long term bonds to fall in price (yields rise). The fed needs to steepen the curve to allow banks to profit. They need to reliquify as their reserves have been depleted.
This is the Feds rescue plan. In plain English: it will not work. The losses in the banking sector are just too great with huge losses exceeding trillions of dollars in subprime and derivative fiascos.
Today, the Dow fell by 46 points after being up by 180 points early in the session. It failed to follow through yesterday's big gain. I just took a peek at Toyko. It is now down 225 points. It is reacting to the lousy closing on the Dow. Normally, I would tell you that the Fed would come immediately before the opening on the Dow tomorrow with a 3/4 rate cut, but that would be too close to Tuesday.
So what will Bernanke do? I think he will let the Dow tank tomorrow. He will try and get his PPT to goose the market but it will be to no avail.To many investors need to leave and the door is only a few inches wide. The market is in serious trouble.
Gold should continue its upward trajectory. It will meet resistance at 985.00 If it penetrates, the battle for 4 digit gold will be waged and thatbattle will be fierce.Meanwhile our silver friends will continue to pick up loose silver as thesilver commercial failure looms large.
I urge everyone to be rid of all financial stocks and to be in gold,gold-shares of producing miners, oil and multiple metal plays like Teck,BHP or Freeport.
I will speak to you tomorrow
Tuesday, March 11, 2008
gold closed up by 4.10 to 974.30 but silver was hit for 3 cents.
Silver got hit because the CBOT raised the limits on silver. They needed to dampen demand as silver has been quite volatile and the comex still needs to deliver around 4 million oz. It looks like they are having a lot of trouble trying to find the metal.
Oil started today zooming to 109.75 but finished at 108.69 a record close. However the big news came from the Fed:
the Fed announced that they were providing liquidity to the marketplace to
the tune of
a) 200 billion of treasury bills
b) temporary infusion of 100 billion of repo pool money.
The two hundred billion of treasury bonds are to be exchanged for collateral of asset backed commercial paper or subprime collateral. In essence, the Fed is taking on the garbage in exchange for freshly minted currency. The total assets of the Fed is 800 billion dollars, so 25% of the Fed will be this illiquid garbage.
With the banking sector taking on these bonds, they will sell these instruments for the cash. Thus they will be short the bonds to the Fed. The Fed is signalling that Long term rates are to rise... they are steepening the yield curve.
Now, we know for sure, they will lower rates by at least 3/4 of a point next Tuesday. They will probably lower it another 3/4 point after that and that should do it. At that point in time, the Fed funds rate would be 1.5% and the 3 month rate will be also 1.5% but the longer term rates should move out to the 5-6% rate. Now the banks can loan again. They borrow at the short end and lend at the long end.
What will gold do? It will skyrocket as the long term rate rise signals massive inflationary pressures.
The open interest on gold and silver basically remained at par today despite massive volumes of trading at the comex on each of the precious metals. The commercials are trying desperately to lower their exposure to their shorts. The total silver short is over 1 billion oz. The total short on gold is around 16000 tonnes or 500 million oz of gold. They have their work cut out for them.
The stock market reacted positively to the massive infusion of dollars, with the Dow up over 400 points. The market interpreted correctly that the Fed wished the banking sector to go short on the bonds. In other words they were signalling the longer term rate rise and also signalling that physical gold must rise and the gold shares as well. The market interpreted correctly
that we are going into hyperinflation mode. The premiums on the gold shares and gold fell big time also signalling that gold is now set to break $1000.
They released the figures for the trade deficit and it came in at a deficit of 58 billion dollars. This is still quite surprising as the lower dollar is having no effect on lowering the deficit.
There is so much for you to digest today. I will not bore you with other financial events. The events of today was totally earthshaking.
speak to you tomorrow
and this is what our good friend Evans Pritchard had to say about events of the day.
Monday, March 10, 2008
From: LePatron@LeMetropoleCafe.com [mailto:LePatron@LeMetropoleCafe.com]
Sent: Monday, March 10, 2008 9:58 PM
To: Harvey Organ
Subject: [Bulk] (GATA) Sprott sees financial turmoil pushing gold to $2,000
Le Metropole Members,
Sprott sees financial turmoil pushing gold to $2,000
Submitted by cpowell on 09:36PM ET Monday, March 10, 2008. Section: Daily Dispatches By Stewart Bailey Bloomberg News Service
Monday, March 10, 2008
Turmoil in global credit markets may lead to the collapse of a North American bank, pushing bullion prices up to $2,000 an ounce as investors seek a haven in gold, Eric Sprott said.
This year's decline in banking and brokerage stocks will worsen, said Sprott, 63, founder and chairman of Sprott Asset Management, which manages about $7 billion. In response, the company is short-selling financial stocks and increasing holdings in bullion and mining companies, Sprott said. He declined to name which bank he thought may collapse.
"We're in a systemic financial meltdown," Sprott said in a March 6 interview at the company's Toronto headquarters. "There are probably 10 companies that are broke that are still trading -- banks and financial institutions."
Sprott, who in 2004 foresaw uranium and crude-oil prices rising, expects that the global financial system will come under increased stress as banks, faced with slipping stock prices and capital erosion tied to subprime-mortgage loans, battle to raise money to offset losses caused by
Bear Stearns Cos. dropped as much as 14 percent today on speculation the company lacks sufficient access to capital. The company, the second-biggest underwriter of mortgage-backed bonds, led Wall Street shares lower in the past six months as the world's largest banks and securities firms wrote down $188 billion of assets linked to devalued loans.
The "concentration" of Sprott's short selling is in financial stocks, housing, and consumer products, he said. Short selling involves selling borrowed stock on the expectation share prices will fall, allowing the short seller to buy the equities in the market at a lower price to repay the debt.
... 'Easiest to Short'
"The brokerage companies, the investment banks are the easiest to short," Sprott said. "Do I understand what's happening in the business? Yes, there is no business."
Sprott said his company's offshore hedge funds have increased the proportion of gold in their portfolios to about 30 percent. The company is also buying small mining stocks that have yet to "blossom," including Dynasty Metals and Mining Inc., Golden Star Resources Ltd., and MAG Silver Corp., he said.
Gold has gained for seven straight years and reached a record $995.20 an ounce in New York on March 5. The precious metal rose 16 percent this year before today, compared with a 12 percent drop in the Standard & Poor's 500 Index and a 24 percent slump in the seven-member S&P 500 Investment Banking & Brokerage Index.
... Funds double
The Sprott Gold & Precious Minerals Fund and the Sprott Canadian Equity Fund have both more than doubled in the past five years. The S&P 500 Index gained 58 percent in the same period.
Sprott says the collapse of U.K. mortgage lender Northern Rock in September precipitated some bullion purchases by skittish depositors seeking a safe investment for the money they had withdrawn from the bank. That presages the larger effect that a banking failure in North America would have on gold demand, he said, since investors will have few good alternatives.
"Government bonds are a joke at the interest they're paying," Sprott said. "You can buy gold or other real things -- gold, silver, platinum, palladium -- things that hold value."
* * *
Join GATA here:
GATA Goes to Washington -- Anybody Seen Our Gold?
Thursday-Saturday, April 17-19, 2008
Hyatt Regency Crystal City, Arlington, Virginia
* * *
Quite a day!!
Gold closed down 1.80 to 970.20 and silver fell by 44 cents to 19.28
Throughout the weekend we got disturbing news on the health of the economy. Asia was down 2% Sunday night as was Europe. Gold was up in Europe by 8 dollars when it was belted down by the London cartel boys right after the first money fix. By the time Comex opened gold was down by 11.00. Gold's friends were waiting in the wings and proceeded to push gold up to positive. Once the afternoon fix was declared and all the physical buyers in London vacated the LBMA premises, the cartel started again to whack gold again. Paper gold's friends again appeared and we were in a tug of war throughout the final few hours.
In the end, gold was neutral but silver suffered small damage.
The open interest on gold declined again by 2200 contracts despite Fridays huge volume and see-saw day. The cartel expected to see continued liquidation.
They got zilch.
The open interest in silver declined by 1800 contracts again on Friday as well. The commercials do not like what they see. They are bailing out at every opportunity.
In economic news today, oil rebounded strongly to close above 107.00 OIL is priced for the CPI tomorrow so this is most unusual to see oil rise today.
Expect the cartel to hit oil tomorrow. Oil has risen from 93.00 to 107.00 so it would not look pretty in the CPI numbers.
The Dow tanked by 153 points. It is now clear that the Fed has acknowledged that lowering the interest rates has not helped the economy at all.
JPMorgan came out and stated that the banking industry has received a "systemic margin call".
In other words, the banks have issued margin calls on the declining collateral and the banking industry is thus experiencing a massive contraction.
They have tried "qualitative easing" and that has failed.
They are now undergoing "quantitative easing". These are the TAF auctions and the temporary repo pools which the Fed are initiating again.
I told you that the Fed were going to print 100 billion dollars of new money. I am sorry that I misled you a bit. In small print, there was another 100 billion in temporary rep pool money that the Fed is going to inject into the system. I repeat: the Fed will inject 200 billion dollars into this mess.
As I pointed out to you on previous occasions, the banks are insolvent and any injections will go straight to the bankers and they will hoard dollars.
The economy will not profit 5 cents from this infusion. In order to get a bang for their buck, they should give each household $300,000 and let them pay off the mortgage or spend it. At least the economy will benefit. With the banks hoarding dollars, the consumer is still in trouble, the housing crisis is still upon us and nobody benefits other than our banker friends.
There is talk that Bernanke will do an inter-meeting Fed fund rate cut tomorrow. The stock market is in serious trouble but he knows this will be futile.
He does not want WallStreet to go into a full panic mode! I doubt he will do it.
All the banks and near banks were off big time today with Bear Stearns leading the way. There were rumours of its illiquidity but there were denied by Bear Stearns.
I guess we heard this record before.
As I pointed out to you last week, all usa banks are insolvent and that includes Bear Stearns, Goldman Sachs, Fannie Mae Freddie Mac , Wachovia, Wells Fargo..all of them.
Ambac raised 1.5 billion to shore up their retained earnings. This was a hopeless attempt to save the company. Seventy percent of all ARMS munis failed last week. This morning, Wall Street began questioning the credit quality of Fannie Mae and Freddie Mac. These guys lost about 10% of their value today.
In criminal news today, the FBI have now raided the offices of Countrywide. These guys will be toast soon.
Also there is an investigation into the Governor of NY Eliot Spitzer re a Prostitution Ring. Spitzer apologized to his family today for his transgressions. This is the same Eliot Spitzer that attacked many of Wall Street's white collar thugs and brought them to justice.
Only in America!
Throughout the day, there was talk of a bailout of Fannie Mae. Barron's thought that the Government will bail them out shortly.
In a huge article Robert Cookson, writes in the Financial times that turmoil in the credit derivatives is having an increasingly brutal impact on the wider financial scene as the vicicious cycle of forced selling drives risk premiums on company debt higher. The cost of insuring 125 of the top investment grade securities rose from 80 basis points to a new high of 188 . It closed at 156 points or a full 100% premium risk increase .
Again, we witness the Libor rates rise. This is because the banks refuse to lend to each other. The reason: their collateral has dissipated! This is the reason that the central bankers needed 200 billion dollars to shore up their balance sheets.
Paul Krugman, an excellent writer and economist alarmed everyone as he addressed what Tim Geithner a Fed Governor, wrote last week to economists.
Geithner stated that the implosion started in August of 2007. The buzz word then was that the subprime problem was "contained" and it will not spread into other markets.
Soon afterwards, a full scale panic occurred and many investors pulled hundreds of billions out of the asset backed paper market a little known but important market to the banks. This led to a de facto bank run and sent shock waves throughout the USA and in Canada. The National Bank of Canada is still reeling from this disaster.
The Fed responded by sending more money to the banks whereby markets calmed down a bit. But this lasted only for a few weeks. In December, the panic was back. Markets started to fall big time, so the Fed introduced the Term Auction Facility as a direct way to get money to our banker friends. Again the market calmed down a bit as the new year was approaching.
Then in Feb another market that we rarely hear about suffered the equivilent of a bank run. The market was called: auction rate securities. This 300 billion market seized completely!! It is too difficult to describe this market but it is similar to asset backed commercial paper. This sent many derivative players into hiding. There are huge derivative plays off of this auction rate security business!!
Last week, 2 big financial companies have been unable to raise cash to pay their lenders. Fannie and Freddie are having trouble raising funds to pay off lenders.
What is really going on: Geitner states that there is a vicious circle in which the banks and other market players took out too much risk and they are all trying to get out of their investments at the same time.
Then Paul Krugman states what I have been telling all of you: " what worries me more is that the move seems trivial compared with the size of the problem..
200 billion dollars sounds like a lot of money (the new injection proposed by the Fed) but when you compare it with the size of the markets that are melting down……there are 11 trillion dollars in usa mortgages outstanding and thus the 200 billion infusion is a drop in the bucket".
What he should have added is the 521 trillion of dollars of derivatives related to the mortgage market. This has melted as well.
I hope you all get the picture.
speak to you tomorrow