Good Morning Ladies and Gentlemen:
gold closed up by 7.80 to 856.10 and silver rose by 26 cents to 16.38
There were several notable events yesterday which I would like to highlight:
First of all at 8:25 am the Fed announced an increase in the TAF auction for funds that the Fed will swap. The increase is from 50 billion to 75 billion dollars.
They are including in this swap student loans and other asset backed credit like credit cards and car loans. The Fed also arranged a swap with the ECB and the Bank of Switzerland. Generally announcements of this type occur after the market but this time it occurred 5 minutes before the job report. The biweekly auctions automatically induces liquidity from 100 billlion to 150 billion dollars. This smacks of desperation.
Many thought that the jobs report must be terrible. For 5 minutes there was panic on Wall Street. Rumours surfaced that the swaps were to prevent UBS from failing.
Then at 8:30 we heard the jobs report and it came in at a very mild loss of 20,000 jobs. However on closer examination which pundits never look at, the B/D report added a ficticious 267,000 jobs and most in the construction and finance sector of the economy??? Thus if you remove that figure that total loss of jobs is around 287000 which makes sense.
In financial news, oil shot up a full 3.20 to 116.32. Copper rose by 13.24 cents back to 3.85 per pound.
Corn after consolidating over the past few weeks, broke to to the upside. Strangely the dollar rose by .34 despite all the advances of the commodities.
I guess banking intervention never works.
The gold open interest fell by 4000 contracts to 427835 which was the result of some specs leaving the fray but not much. Silver's Oi fell by a further 1063
contracts. No further deliveries were hit and approx. 33 million oz stands.
There is a new problem surfacing on Wall Street. We heard for the first time "Pension Deficiency Notices" were sent out by various companies. The law was signed into effect in March of 2006 which created definitions for deficiencies in pension plans of companies. Most of the provisions went into effect for 2008 and this is why we are now starting to hear about this next major bombshell. The basic definitions:
1. Endangered Status….80% funded
2,Seriously Endangered Status…70% funded.
3. Critical Status…65% funded. The law addresses how to correct these deficiencies.
We will watch this development closely. Suffice it to say, that many companies have considerable subprime, CDO's and other illiquid assets in the pension fund and this must now be addressed.
Many felt that the increase in the TAF and the inclusion of other asset backed debt to be swapped by the Fed is the result of the increase in the Libor rates.
It rose again on Friday.
Also the Bank of America came out late in the day and stated that they may not guarantee the debt of Countrywide. Countrywide has 38 billion dollars in debt and many CDO"s and other toxic junk on its balance sheet.
In perhaps the biggest statement by anyone, former Fed Governor William Poole who retired from the Fed in March (just before the Bearn Stearns debacle).came out and stated that the Bearn Stearns and the new bailout of the student loans by the Fed is nothing but a "Rogue Operation".
Yup!! you heard this from a just retired Fed Governor.
On Friday, we heard that the Japanese banks have now lost 14 billion usa dollars from the credit crunch. The mess is spreading around the globe.
There is no doubt that considerable official gold has been flooding the market to subdue gold's price. One commentator stated that in 2006 it took 400-500 tonnes of gold to knock it down from 730 to 570.
He states it probably took much more to knock gold from 1030 to 860.00
With the refiners working overtime, is the USA first refining their coin melt gold at the refiners and then leasing it over in England?
Is this what a strong dollar policy means?
Have a great weekend
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