Good morning Ladies and Gentlemen:
I am going to be quoting from two sources this morning:
1 Willie’s paper on Pressure Points in the Economy.
2. The Midas commentary at Lemetropolecafe.com
In late 2007 S and P cut the ratings on 34 billion of debt tied to Alt A’s. These securities have already a 6.6% rate of delinquency at 90 days late. Dr Willie now believes that S and P downgrades will force many banks to move 5 trillion dollars of debt from off balance sheet to on balance sheet. This is going to cause massive bank failures as their non performing loans exceed their equity capital.
We now have two papers stating the removal of 5 trillion off balance onto banks balance sheets; 1. The Citibank report that I sent you on Wednesday and 2. the Willie report of today.
The big banks have set up private Resolution Business Segments entrusted with the duty to liquidate credit related assets. The reason that the banks have done this is to avoid the regulators and avoid proper accounting and thus, preventing a cascading default in the bond markets.
Willie also comments on the new Variable Interest Entity (VIE) have been set up by the banks. These entities are nothing but a shell game for the insolvent banks avoiding proper accounting.
Willie then discusses the impact of the downgrading by S and P of Ambac and MBIA. He believes that this will push the regulators to remove off balance sheet losses to on balance sheet at banks.
Municipal bonds will be hurt badly and Willie states that this will be worse than the mess in
He then comments on further writedowns necessary for UBS, the largest bank in
I urge you all to read the Willie article in depth. Press on the blue : gold-eagle .com editorial at the beginning of my commentary.
And now I would like to comment on Fridays events. I will be quoting from Midas.
Gold closed up by 23.30 to close at 1:30 pm Friday at 895.50, It continued in the access market to 902.30 as the Dow continued to decline. Silver rose by 30 cents to 17.37. It finished in the access market at 17.42.
The day started at 8:30 with the release of the non farm payrolls. It showed a loss of jobs of 49000. They expected 60,000 so the number was supposedly better. Even stranger than that was the announcement that the unemployment rate went up from 5.% to 5.5%.
On closer examination of the report, one sees a job creation of 216000 from the phoney B/D stat. In reality over 250000 have lost their jobs last month. You also have many discouraged workers who give up looking for work. They are not counted in the figures.
There are about 100 million workers in the
Regardless of methodology, Wall Street figured out the mess and knew that they were in big trouble. With many unemployed workers, the coffers at the Fed trickle down as does State and Municipality income. The Dow plummeted down by 393 points.
The second big event of the day was the rise in oil at 138.54. per barrel. The CRB index rose to an astonishingly high 441.51 up a huge 15.35. Needless to say that this is an all time record.
Part of the reason for the price rise was comments by an Israeli minister who stated that
Morgan Stanley came out yesterday to state that they feel that oil will hit 150 dollars per barrel. Morgan has now joined Goldman Sachs in that category and thus they are long in oil contracts as far as the eye can see.
Morgan Stanley comments that
July Gasoline rose by 41 cents to close at 3.55 per gallon. Heating oil went limit up!!
With the huge advance in commodity prices one would have expected the long bonds to tank. Nope! They rose. The cartel had two many balls to keep in the air. They abandoned supporting the stock market (the Dow), the dollar (the
The ECB has consensus for an increase in their short term interest rates. Inflation is running rampant over there. It looks like
Watch for these two sovereign nations to exit the Euro pact.
In the gold market, we saw that the open interest on Thursday rose a scant 1500 contracts to 402000. Silver rose by a small 882 contracts. Remember on Thursday, they raided gold and silver big time.
Gold on Thursday fell by 8.00 so a rise in open interest means all the sales were short sales. In silver, the commercial banks covered as fast as their little feet would carry them.
As a matter of fact, after the market closed we received the COT report and we saw that the commercials were bailing out of both silver and gold comex. The event magnified yesterday with all commercials covering quickly as they did not want to be short over the weekend.
On Friday, there was a big gas explosion in the
In summary then, we are witnessing huge increases in commodity prices around the globe.
The Banks on this side of the pond are broke and will not be fixed until they remove all their collaterized debt from its balance sheet. However if a Resolution trust is set up to handle this, you can bet the farm that hyperinflation will be upon us. It will not be pretty.
Speak to you on Monday