Thursday, May 15, 2008

May 15.08 commentary.

Good evening Ladies and Gentlemen;



Gold closed up by 13.00 to 878.40 and silver rose by 7 cents to 16.62.  The gold shares rose in fine fashion today with the XAU climbing by 6.33 points to 182.33


The open interest on gold comex rose again despite gold's fall yesterday.  Silver's OI declined marginally.

Oil spiked early in the session up by 3.00 to 126.00 and then it reversed all the way down to 120.00 and then it went back up to close at 124.40 a barrel.  It is quite evident that the authorities want oil prices down.  The cavalry were called in but  the cartel sounded the retreat trumpet as oil rebounded from its nadir of the day to close at a very respectable 124.40.


My son Lenny and I thought that gold was going to be hit today.  We were already bracing ourselves for a loss of 10-12 dollars .

The cartel selling  of gold has no profit motive for them .  They keep supplying paper at lower and lower prices. They care not at what price they sell gold at.


However to our surprise this morning we found gold up at the start by 2.00.  At the comex opening in fell to go in the minus column and then boom, gold starting to rise and took off and at one point was up 20.00.  After the London fix , oil was tagged and thus gold and silver followed in sympathy.  However something spooked the gold cartel and I will try and explain what I think happened today.


As many of you know, I follow the TIC report.   This report is hardly commented upon.  However it is very significant and many  foreigners watch this figure at well.  The TIC represents the flow of capital into the country.  The USA has a trade deficit of 58 billion dollars officially, but I bet it is in reality somewhere around the  66 billion deficit.  The service sector deficit is about 15 billion dollars.  Thus the usa needs to attract approximately  81 billion dollars per month  to finance its twin deficits.  We learned  a few days ago that the budgetary deficit for the first 5 months is 265 billion dollars.  We refer to the twin deficits as:  1. current account deficit and 2.  budgetary deficit.

In plain English, the usa needs to attract approximately the amt of its current account deficit to stay afloat and keep the dollar form sinking.


Today, the TIC report for March showed a massive outflow of 67 billion dollars.  This is not an inflow but an outflow.

If you were to look at the Fed's balance sheet, one would find that foreigners refused to lend to usa banks. This was around the time of the Bear Stearns collapse.  Thus  the total deficiency for March is in reality the 67 billion dollars that left plus the 81 billion in current account deficit column.  The total dollars  leaving were thus  148 billion dollars.  How did the Fed finance this loss?

They increased their TAF auctions and printed the missing money.


I will wait patiently to see next months figures.  If the TIC continues to decline or shows a massive outflow, you can bet the farm that the game is over.

The long bond yield will rise appreciably and this will send JPMorgan to the showers as their derivatives will burst.  These guys have made a one way bet on interest rates to the tune of 91 trillion dollars.  A lower dollar will send the bond yields into the strasophere   (prices plummeting).  Reg Howe has the data and will be reporting shortly on the derivatives as reported by the BIS on the banking sector.  It will not look pretty.


As for the reason oil rose and then reversed course and then finally went back up..nobody knows.  However it is rumoured that the commercial banks are now deeply involved in the oil market trying to repair their balance sheets.  They need oil up in price.


The second big news story came out of the Empire report which is a report on the manufacturing sector of the usa.

With the dollar quite low  in April one would expect that the manufacturing sector to be booming.  No,  the report showed a huge decline with a reading of negative 3.2 instead of a  flat zero.  Industrial production fell a huge .7% the biggest drop in over 3 years.

And this is with a usa dollar low!!!!!  On top of this the Philly Fed also reported a huge drop in activity in their neck of the woods.

The reading came in at  15.6 negative.  The consensus was for a negative reading of  19.00 as Pennsylvania is taking it on the chin as the recession deepens .


To show you that the economy is contracting, we witnessed that commercial paper continues to fall.  It has contracted for the last 7 weeks as banks are still trying to repair their balance sheets. For the week ended May 14.08 commercial paper fell by 19.7 billion dollars.   As commercial paper contracts, the banks must call in all their loans.  This is why the economy is totally lethargic.


Yesterday, we heard from Paul Voelker and this banker   gave a gold friendly speech to Congress.  Bankers rarely promote gold but he stated that the usa is back to conditions which surrounded him in the 1970"s.

Today we heard from Berbanke.  He sounded alarm bells by telling banks that  they should "maintain generous cushions", and

remain proactive  in capital raising activities. 

I guess the credit crunch is far from being over.


Home builders today see no end to the crisis in their industry.  The usa building sentiment is at an all time low.


Tomorrow is option expiry day and expect much volatility.  You can bet the farm that the cartel will raid gold.  However someone or some small commericals  or some sovereign nation is lurking picking up contracts.  Mr Ted Butler has discovered that smaller commercials are picking up gold contracts but the larger commercials continue to supply the paper.

Lets see what tomorrow will bring.

Speak to you on Saturday morning early.  I will then be off to L.A. to see my good friend Mark Goldberg and find out all about the gold  coin market.


see you on Saturday






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May 14.08 commentary.

Good evening Ladies and Gentlemen:


gold closed down by 3.60 to 865.40.  All of the loss occurred after the afternoon London gold fix.  Silver fell by  18 cents to



With the huge raid on gold yesterday, one would have expected that the open interest to fall.  If people are not interested in gold then its interest should wane.  No, it did not happen this way:   the open interest declined by only 300 contracts and remains at 439500 contracts. Basically all the sells of gold comex were of the short variety.


Silver's open interest declined by only 1000 despite yesterdays huge downfall in silver.


In the news, we heard from the government on CPI.  They reported wonderful news that inflation is very tame, coming in at .2% per month instead of the expected .3%.   The government pointed to a flat gasoline price for the muted inflation number.  (Gasoline prices for April in real life rose by 10%.  However the government decided to balance the rise with adjustments that nobody can figure out).

Wall Street rejoiced at the number rising by 150 points.  It stood there until late in the day when senses came to investors heads and they sold off the Dow to close up by only 66 points.  The Nasdaq fared worse and it rose by only a single point.


The big news of the day is the long bond.  It fell a full 1.5  points yesterday and another 3/8 point today.  The long bond is now trading at 115.50.  A few weeks ago it was trading over 120.00

The long bond is reflecting inflation fears among traders here and abroad.  Why on earth would anyone want to hold a  30 year bond yielding 4% when real inflation is rearing is ugly head at around 10-12%? (Williams Shadow Statistics).

We have anecdotal evidence that Chinese investors are unloading many of their long bond holdings.  To a chartist, the long bond looks terrible:  the long bond price is below the 200 day moving average, the 100 day moving average, the 50 day moving average, the 20 day moving average and the 10 and 5 day.  Generally this means that investors are bailing out of bonds as they perceive inflation to be higher than normal and it is too risky to be in bonds.


As I pointed out to you on many occasions, this is the final straw that will blow up the banks.  JPMorgan who is the Fed for all practical purposes has made a one way bet that interest rates on the long term will remain low forever.  The total bet according to  BIS figures  is 91 trillion dollars.  Today, the BIS releases its total composite derivative and a further study is released next month.  Reg Howe will be very busy going over these figures for you.



Today, Paul Voelker, in testimoney to the Congress on the liquidity crisis, startled politicians that  we are in a very serious financial crisis of confidence similar to the 1970's.  This has to be the most friendly gold statement ever recorded by a banker.


The month of June is the start of the ARMs reset and each month they will escalate.  Alt A's start in Sept and then we have prime mortgage stuff coming due late in the year.  House prices have fallen by 7.7% this quarter, the  biggest decline in 29 years.  The median price for a home sold was down to 192000 from 212000.  USA foreclosures have risen by 65% and bank seizures more than doubled in April as adjustable mortgages started to kick in as well as vacated homes adding to the glut of unsold homes.


Meredith Whitney on TV yesterday stated that Citibank is basically a basket case and has no chance of recovery.  Citibank  is in the process of identifying  500 billion of non core assets to sell.  She, basically agreed with me that this is totally hopeless!


We still have two days left on option expiry and the bankers are going all out to fleece option holders.  Our regulators are asleep. Even Paul Voelker admits that the regulators have no clue as to what is going on.


speak to you tomorrow




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Tuesday, May 13, 2008

commentary May 13.08


Good evening Ladies and Gentlemen:


Sorry for being late as we just came back from seeing My Fair Lady.


Today the cartel  bombed gold and silver. Gold was down by 13.90 to 869.00 and silver was hit for 43 cents totally reversing yesterdays gains.


However the open interest on gold and silver both rose.  Gold rose by 7000 contracts sto 440,000 despite gold's see-saw day yesterday.  Silver's OI rose by less than 1000 contracts.


Today is oil pricing day and generally the cartel  bomb  oil and thus gold.  Early in the session, oil was hit but it rebounded to close at 125.86.  It seems that the world is monetizing oil now that the cartel continues to hit gold and silver.


This will not last long.  The whole world is inflating as they are reporting correct figures.  England reported inflation at 1.8% month over month  (22% yearly).  Almost all countries are facing hyperinflation .  The ECB's governor  Noyer stated today that

" the world environment is very inflationary"


The ECB came out today and stated apologetically that one small captive bank sold 15 million euros or .79 of a tonne.


This is the third straight week that we had either 1 tonne or zero from the ECB.  The ECB has not sold any gold itself.  If it did they usually announce a sale two weeks  after the fact.  So Europe is not involved in the selling of any gold.

It is quite conceivable that the ECB would monetize some of the leases that they have done over the past few years.

The ECB has decided to announce no sales, period. 

Switzerland has not announced a sale of gold in quite a while.  No other country has come forward to announce a sale.


However, the usa announced a huge increase in export gold.  They announced a huge 63% increase in exports.  They announced that in March  they exported a record 2.4 billion dollars worth of gold.    Since the usa produces around 400 million dollars worth of gold, then either 2 billion dollars worth of gold is foreign gold  (the usa has in the past used foreign gold sales in the trade figures)

or it is official usa gold belonging to its citizens.


Judging from the severity of the markets, it looks to me that the logical choice of supplier of gold is the usa. If this were borne to be true, the actions of the Fed and officials who ordain this action, the act of selling this gold would be criminal.  It does not belong to them.

speak to you tomorrow



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Monday, May 12, 2008

May 12.08 commentary:

Good evening Ladies and Gentlemen:


 Before going into the events of today, I would like to highlight  the USA Federal Budgetary deficit which was released  before the market opened.  I would like to emphasize that the deficit for 5 months is 263 billion dollars.  This is from Oct 1/07 til Feb 28.08.

 The comments preceding the statement from the Fed was made by James Sinclair:                                               

The expansion of the US Federal Budget Deficit is a key economic fact that is hidden in plain view.

The persisting lack of discussion about the US Federal Deficit growth persists The expansion to a predictable $700 billion deficit according to the last quarterly report has seemingly gone right over the grasp of the talking heads.

My feeling is a growth indicating a 12 month US Federal Budget deficit of $1 trillion is probable as we move into the second half of 2008 because general business activity has scant potential for reversing upward while expenditures in an election year have very little chance of being constrained within the limits of fiscal sanity.

Federal Budget Deficit Swells to $263.3B

WASHINGTON — The Treasury Department says the federal deficit swelled to $263.3 billion in the first five months of this budget year as record spending during the period outpaced record revenues.

The department's latest snapshot of the government's balance sheets, released Wednesday, shows that the deficit for the budget year that began

Oct. 1 was up a whopping 62 percent from the red ink of $162.2 billion for the corresponding five-month period last year.

The latest year-to-date budget deficit of $263.3 billion was an all-time high, the government said.

Spending totaled a record $1.23 trillion, while revenues totaled $967.2 billion, also an all-time high.

For the month of February alone, the government ran a deficit of $175.6 billion, a record for any single month. That was larger than the shortfall of around $170 billion that economists were expecting.   end


and now for the main events of the day:

Gold closed  down by 80 cents but silver  decided to run on its own increasing its value by 36 cents  rising to 17.16.

The open interest on gold fell unexpectedly on Friday with gold's runnup and stunning outside reversal.  It frightened away a few commercials as the open interest fell by 8800 contracts to a respectable low of 433000.  Silver as always did the reverse and rose by 1000 contracts.


The big news of the day came from MBIA which reported a further loss of 13.03 per share or a loss of 2.41 billion dollars.

I would like to put in perspective the financial results of MBIA so you can clearly see the absolute fraud by Wall Street.


During the last quarter when MBIA announced troubles with derivatives, they arranged for financing and a total sum of 2 billion dollars from overseas came forth.  This was to shore up its balance sheet despite  continual  credit defaulting and major problems

surfacing at subprime mortgages.  MBIA insures these mortgages and can ill-afford these guys going bust.  On top of this, they insure municipalities by guaranteeing their debt.  This is very profitable for them as they receive a fee and they grant  AAA status to these bonds.  Of course in order to grant AAA status, they must be triple A themselves.


Now lets fast forward to today.  The entire 2 billion dollars advanced for shares in the fall of 2007 have been wiped out.

And now we can take a snapshot of what their balance sheet looks like today:


MBIA has 2.06 billion of book capital (retained earnings).

It supports liabilities of 49 billion dollars.

It has a 668 billion insurance portfolio  of which  10% is classified as level 3 assets (if you believe them in their assessment)

Ten per cent of 668 billion is 66.8 billion dollars of basically defunct assets.


So in essence we have a company that has 2 billion of book capital and 49 billion dollars of liabilities with a further risk problem of potential defaults and payouts on 68 billion dollars.


and they rate these guys as AAA ?????????  give me a break.


We next heard from Jamie Dimon over at JPMorgan and he states that the recession is going to be pretty bad. He expects the credit card write offs to reach 5% this quarter and continue higher in the months to come.

He sees deterioration in the PRIME MORTGAGE arena to the tune of double the 250 million dollar mark so far this quarter and he sees a rise of 100 million every quarter until late in 2009.


And he is not talking about the subprime and Alt A stuff.  This guy is talking from both sides of his  mouth.

He is basically stating that the economy is in serious trouble.


In an article published by Pritchard-Evans in Midas,  there is a section discussing the woes of California.  First of all as reported by myself last week, the city of Vallejo  with inhabitants of 117,000, went into chapter 9  the result of tax erosion and  a 26% fall in house prices. John Moorlach of Orange County stated:


"this is just the tip of the iceberg. Everyone is going to line up  for Chapter 9 in California.

He states that consumers are  "juggling plastic  to put off their day of reckoning".  This man should know: Orange county went bust in 1994.


Today the Fed gave us results of credit card figures so far.   For the first quarter, credit card  debt has jumped by 6.7% to 957 billion dollars.  This works out to an astounding 6000 dollars per person.  It is obvious that cardholders are piling up the debt and they have no intention of paying it off. 


Peter Schiff, of Euro Pacific Capital, who I follow and admire opines:  "  My guess  is that many Americans continue to run up

massive credit card  debt because they have little intention of paying it off"..


House prices continue to fall which puts more pressure on our bankers.  Their collateral is disintegrating to zero.


This week is option expiry month for gold at the end of the month and this Friday it is for shares.  The cartel are caught between a rock and a hard place.  They are continuing to supply shorted comex paper and this paper is gladly pounced on by able and strong willed buyers of comex gold.  Their problem:  they are supplying shorted paper at lower gold prices.  It is becoming more difficult to short as many  view the uSA reporting data as totally ficticious!!  They pounce on assets that they believe will rise in an inflationary world.


Speak to you tomorrow.




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