Saturday, June 14, 2008

Commentary June 14.08..the perfect storm


Good morning Ladies and Gentlemen:


Gold closed up by 40 cents to 869.40 although it traded at 871.50 in the access market.  Silver  rose by 5 cents to 16.53.


Yesterday morning, gold was sent down in price by 10 dollars close to its 200 day moving average of 855.75.  The powers to be knew already that the inflation number coming out of Washington was not going to be pretty.  The CPI   for May rose by .6% instead of expectations of .5%.  The yearly rate translates to 7.2%.  The core rate which excludes the hardly used commodities of food and energy came in at .2%

Pundits came on TV extolling the tame inflation environment we are witnessing.  I guess they are not viewing the riots around the world as people just cannot afford higher energy prices.


The CRB index rose again and is setting record levels every day.  Corn and  soybeans rose to again record levels.


To show the discomfort of citizens, the Michigan consumer sentiment fell badly in June to 56.9.  May’s reading was 59.8 and the projected reading was 59.0.

Clearly the consumer is feeling the effects of higher energy costs as oil is a component of most goods produced and also a cost in the transportation of those goods.

Even my most beloved commodity (next to gold) cocoa (chocolate) rose to set a new 28 year high.  I am a confirmed chocoholic!.


The open interest on gold comex on Thursday fell by  800 contracts, so the new Oi starting Friday came in at 393644.  This open interest was last seen with gold at 680-700,  Silver’s OI continues to diverge from gold as it rose another 1157 contracts to 132000.  In essence the Oi on silver rose with a declining price.  This is  ominous.  Also,  gold ,on a heavy 160,000 contract day to see only a tiny contraction must be viewed as being very bullish.


The big news of the day and week is without a doubt the banking sector and this is where I am going to spend some time trying to explain what on earth is going on.


First on the other side of the big pond, over in Europe we are witnessing the deterioration in the banking sector.  The big HBOS  (Halifax Bank of Scotland) is having huge trouble with its mortgages as housing prices plummet in England.  Even the sovereign-owned Northern rock bank is laying off many workers as the housing market implodes.    The  largest bank in the United Kingdom , the Royal Bank of Scotland has seen its stock plummet to around 300 pence near its all time low.  Barclays Bank has seen speculation mount that it must raise capital to shore up its balance sheet.  It needs 7 billion dollars as its Tier 1 capital ratio as fallen to 5.1% .  This is the lowest capital ratio of all banks and signals trouble.  Barclay’s is a bullion bank and is the sponsor of the GLD and SLV.  They are the subcostodians of the physical metals with the real custodian being the Bank of England.  We doubt very much that neither Barclays nor the Bank of England have any precious metals to their credit.


Switzerland also has its share of banking problems with its largest captive bank, UBS, is rumoured that it must again go the well for money as they see continued fall in their level 2 and level 3 assets.   These assets exceed their retained earnings by 160%.


France has the Societe Generale still reeling from the “rogue trading”  scandal.


We learned yesterday from an article penned by Ambrose Pritchard Evans in which he highlights currency  problems in Europe.  German merchants do not want to accept Euros with serial numbers from Italy, Spain, Portugal and Greece.    They fear that Euro currency issued from those sectors will not be good.  This initially hurt the Euro but eventually gold found support from the Europeans who now realize that paper is really only paper.  The article is in the Midas report.


And now I would like to describe what is happening on side side of the continent.


First, Lehman brothers.


Yesterday, their stock closed at 25.18 with the news that Black Rock took at a sizeable chunk of their offering.  This is the same people who are helping the Fed with the Bear Stearns junk.

Treat Black Rock and JPMorgan  as the fed itself.

Here is the analysis on the stock  so you can view for yourself its eventual demise.  The company now has 554 million shares outstanding having printed 248 million new shares   issued at 28 dollars. The new capital added is 6 billion dollars.  They have  about $35 billion in real estate related assets and about $34 billion in mortgage related assets.  Both of these sets of assets  are severally impaired.  The former CFO  Erin Callan on Monday reported that its net worth is 33.00 per share or $18 billion in retain earnings.  However you must remove the huge gain from its revaluation in its own bond.   Lehman bonds are trading at a big discount to par so these guys took a gain of capital and showed it on its books. If you take a discount of 25% on the illiquid real estate stuff you are left with a value of around 22.00 per share or 12 billion dollars.  This includes the new 6 billion dollars from investors on Friday.  However if you take a discount of 50% which is more likely, you  wipe out all the gains and go into a negative 4 billion situation.


On top of that, what business are these guys going to do?  Investment banking is dead.  Their base is higher with no revenue and huge costs.  I cannot see see guys surviving and my bet is that the fed is planning with JPMorgan the demise of Lehman Brothers.


For the past 6 weeks, we have seen the share  price of Bank of America’s share decline.   As I pointed out to you on many occasions, the Countrywide takeover is dead.  However the ramifications throughout the banking world will be felt.  Bank of America also fears this so they are saying mum.  We will watch this development closely.  Also remember, that the board of Directors of Thornburg Mortgage Capital voted to bankrupt the second largest mortgage company in  the usa

The dual bankruptcy of both Thornburg and Countrywide will be devastating.


To which we highlight the following development:



US foreclosure filings surge 48 percent in May

Friday June 13, 7:29 am ET
By Alan Zibel, AP Business Writer

Housing crisis worsens as number of US homes facing foreclosure in May up 48 percent

WASHINGTON (AP) -- The number of U.S. homeowners swept up in the housing crisis rose further last month, with foreclosure filings up nearly 50 percent compared with a year earlier, a foreclosure listing company said Friday. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April, RealtyTrac Inc. said.

One in every 483 U.S. households received a foreclosure filing in May, the highest number since RealtyTrac started the report in 2005 and the second-straight monthly record.

Foreclosure filings increased from a year earlier in all but 10 states. Nevada, California, Arizona, Florida and Michigan had the highest statewide foreclosure rates.

Metropolitan areas in California and Florida accounted for nine of the top 10 areas with the highest rate of foreclosure. That list was led by Stockton, Calif. and the CapeCoral-Fort Myers area in Florida.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. Nearly 74,000 properties were repossessed by lenders nationwide in May, while more than 58,000 received default notices, the company said….  end


As you can see, the perfect storm is upon us.  We are seeing banking troubles over in Europe and mega troubles over here in the USA.


Many have asked me how the usa stock market could go up by 167 points with such horrendous news.  The answer is simple.  The usa released its repo report and lo and behold the boys were busy!!

They printed 88 billion dollars to goose the markets.  With that kind of money they can do just about anything!!.


The long bond price continues to fall and it fell badly to 111.80.  However the  10 year is falling faster than the 30 year.  And on top of this the 2 year yield note is rising faster than the 10 year.(price falling faster..remember, yield is inverse to price).  In  reality we are getting a flattening of the yield curve, something of which banks loathe.  They borrow at the short end and lend at the long end.   It seems that the Fed is in competition with bankers and are purchasing short end treasuries to shore up its balance sheet and thus draining the sector.  We are seeing difficult times for people to get a loan.  It will be very difficult for banks for make money and this spells disaster for our investment banks.


Many are telling me that the usa will raise short term rates in the near future.  The chance of that happening is zero.   The 2 year note is now closer to 2.9% with the fed rate at 2%.   The fed will try and lower the yield on the 2 year note and steepen the curve.  Also remember that banks have huge worthless collateral on the books.  They must let asset prices rise to get rid of this collateral from their books.


If the Fed was serious in their quest to raise interest rates they could have done one or all of the following:


  1. it would reduce the growth rate of the money base  not cause massive printing like the 88 billion dollars on Thursday through the repo pool.
  2. it could terminate the TAF auctions or announce a date for their termination.
  3. it could have given a tiny ¼ rate hike in a surprise move to back up its jawboning.


It did neither.


It will not raise rates as this will smother the housing sector which is generally 70% of the economy. 


So for the next few months, you will witness the inflationary forces of the Fed printing money for our bankers and the deflationary forces of asset contraction caused by the fall in housing prices.

I strongly believe inflationary forces will win out but we cannot be 100% sure.  Gold is trading sideways as it ponders  the  Fed’s next move.


On the energy scene, we now see that Gasoline is in backwardation and  West Texas Intermediate is flat all the way out to 2015..  To our vantage point, it seems that our bankers are in firm control of this market.

Watch for oil to be scarce and rise.  Bankers do not care at all about citizens and their plight.


I wish you a grand weekend

And I will see you on Monday.













Thursday, June 12, 2008

commentary June 12.08


Good evening Ladies and Gentlemen:


Gold closed down by 10.80 to 869.50.  Silver  fell in sympathy down by 29 cents to 16.48.


For some strange reason, the comex did not print the OI.  We had to call for it and the comex gold OI came in at 394500 open contracts basis Wednesday.  Please remember that gold rose by 12.00 yesterday, so in essence the OI declined with a rise in gold price.  Then with such a low OI the cartel raided gold this morning?  It made no sense at all.  Then the bonds tanked with the long term 30 year bond falling to lows not seen for over one year.  The long bond closed at 112.30.  Generally speaking, as long term bond prices fall, gold prices rise as this signals inflationary expectations.  Somehow this message did not get to Wall Street.

Today, was “support the Dow day” and thus all freshly minted dollars went to support the Dow and Nasdaq.  Gold was  pummelled to further the cause.

Tomorrow  you will see all new monies go into the market to support the bonds. The long bond is falling and any price below 106 will totally fry JPMorgan.  Because the bond market is so huge, it will be necessary that all the freshly minted dollars go into that market.  Thus the stock market will suffer and gold will be allowed to rise.  You will see the bonds will probably rise to 113 and change. Each and every day, the manipulators have to keep the various balls in the air preventing a collapse.  Sooner or later it will end.


I would like to spend a little time on the Lehman Brothers story.  You will recall me telling you that this company is toast.  Today, their COO  Erin Callan and their President, Mr. Gregory were fired.  Their stock price fell today to $ 22.70 even though with 5 minutes to go in the session, it was $21.60.  The bankers painted the tape in a hurry. 


However, there are many complications to this story that I cannot explain.  The deal that was announced on Monday…the 6 billion dollar deal whereby 248 million shares of Lehman were offered to investors at 28.00, closes tomorrow at 4. pm.  The stock is down almost 7.00 from their purchase price on Monday or the new investors will be  down 1.4 billion dollars.  There is no way they are going to settle tomorrow.


Trust me they are going to walk away.  They have every right  citing the dismissal of the COO and President.  Why did the board fire these two people today?  Why couldn’t they wait until Monday?


Ladies and Gentlemen:  it doesn’t pass the smell test.  And I do not have the answer to this.  Something is seriously wrong here.


There are many more details in the report but I prefer you read them on your own.   However the Lehman Brothers fiasco certainly resembles the Bear Stearns fiasco.  By the way, the put calls on Lehman Brothers at 10. and 15.00 have increased by 1000x the last few days.  Expiry is next week as we end the option expiry of June. 


I will give a comprehensive review on Saturday




Wednesday, June 11, 2008

Commentary June 11, 2008.

Good evening Ladies and Gentlemen:

Gold closed up by 13.00 to 881.00 and silver was up by 27 cents to 16.84.
The open interest on comex gold went down by 7000 contracts to 396000. Silver had its open interest rose by 2000 contracts despite silver’s fall yesterday. In the comex gold we saw a huge 200,000 volume day and we lost only 7000 of open interest which is small compared to the volume. It is quite obvious that the cartel are short selling in order to keep the paper game alive.

Today we saw corn and soyabeans go limit up.

However the big news of the day was the complete breakdown of the banking sector. Lehman Brothers lost 3.75 to close at its low of 23.75. The low for the day was 22.90.
The widely watched BKX banking index fell 3.6% to 65.86, a level not seen since the lows of 2002. In just one month it has fallen about 25%. The Mortgage Finance Index (MFX) fell badly by 4.17%. The components of this index include Fannie, Freddie and the major mortgage providers. They're gone, along with the homebuilders - the HGX homebuilder index fell by 4.8% to 116.87, a level not seen since 2003. All of the wealth created over the past 5 years in real estate have now melted. In fact it is even worse than that if you consider the 5%-12% inflation per year that has occurred in this timeframe.

The Dow tanked today by 206 points as the world perceived big problems in the banking sector.

Libor rates are continually sinking over in England.

The big British bank HBOS (Halifax Bank of Scotland) saw trouble today with its rights offering. This spells trouble for all other banks wishing to shore up its balance sheet.

In perhaps the most interesting development today, the long bond only went up by .03 against a huge fall in the Dow. This is very ominous.

The yield curve is flattening out with rises from the short end and the long end. The short end is rising faster than the long end and it is all market driven and highlights the perceived risks due to inflation.

The long bond is beginning to recognize the risks of holding this paper with a yield of 4.5% with inflation running at 12%.

Got to go
See you tomorrow

Tuesday, June 10, 2008


"Americans love to live swanky,
so we don't really like Ben Bernanke.
He's tough on the dollar,
makes me want to holler,
'What is up with your rate hanky-panky?'

"When I read about Mr. Bernanke,
I tend to end up kind of cranky.
He may be a scholar,
but he's breaking the dollar.
I've pulled my cash out of the banky."

June 10.08 commentary.

Good evening Ladies and Gentlemen:

Gold closed down by 27.00 to 867.80. Silver also fell by 58 cents to 16.57.

The 200 day moving average of gold is now climbing and tonight it is 850.50. The Europeans view the 200 day moving average as the rock of Gibraltor. Not only that but 850 was the previous all time high for gold. Each day the moving average rises by one dollar as 650 gold is replaced by 850 gold or 200 dollars divided by 200 or 1.00.

This should provide the strength for gold.

The open interest on the gold comex climbed by 3500 contracts to 403700. Yesterday we saw gold hit for 10 dollars. Generally on a fall in a commodity price one would expect a fall in open interest.

A rise in OI with a fall in the price of the commodity means short selling was the order of the day. The cartel tried to liquidate the longs and they failed. They succeeded in offering gold at lower andlower prices which many said thank you!

We have witnessed Bernanke and Paulsen try moral suasion to talk up the dollar. There is absolutely NO WAY that the Fed will raise interest rates due to the fragile nature of the housing market and the general demise of the markets. Today with Bernanke and Paulsen speaking about a strong dollar policy, provided the necessary cover for the crooks to raid gold and silver.

Over 200,000 contracts traded today at the comex with 135000 coming in the first half hour. The regulators just look the other way. These guys cannot police themselves.

As for economic news, it was all gold friendly but that did not matter to our manipulators.

First the trade deficit was announced and it came in worse than expected, a full 60.9 billion deficit even with a weak dollar. They used a price of oil of 96. dollars per barrel when the lowest price for April was 120.00. Go figure!! They did not include the gold export but as soon as I obtain it I will let you know. Last month gold exports were 4 billion dollars worth of gold.(80 tonnes) The usa only produces around 1 billion of gold or 20 tonnes per month.

The second biggest news of the day was the complete collapse of the long bond which closed in the regular session at 113.02. It is within spitting distance of the yearly low of 112.8

The third biggest news came from Lehman Brothers which yesterday raised 6 billion dollars by selling 248 million shares at 28.00 dollars. Today, the stock fell to 27.29 so these new owners are down by 173 million dollars. Also JPMorgan continues to fall in price in sympathy with Lehman. Maybe the street is getting a little worried about a repeat performance of the Bear Stearns fiasco.

There are new credit problems now surfacing:

1, credit card delinquencies are now are on the rise. Many have securitized these and they are on the books of many banks

Watch for this to explode.

2. We are now in the beginning for ARMS adjustments. This will cause banking collateral to fall big time and house price to fall and again many bankruptcies.

  1. ALT A’s begin in earnest in Sept. They total 1.2 trillion dollars and dwarf the subprime loans in a big way.

  1. Late in the year we should start to see losses in the PRIME mortgages and then

  1. Car loan defaults.

You will see the entire gambit of debt defaults by Christmas 2008.

Today we learned that a unit of Calpers, the large California pension fund announced that its subsidiary, LandSource Communities filed for Chapter 11 bankuptcy. Expect many more defaults like this in the coming year.

The ECB announced today the sell by only one captive bank of 1.5 tonnes of gold. It is clear that the ECB does not want to be part of the gold sales. It is strange that no country has come forth and announced any sales. The only official seller of gold is the usa and that is totally criminal. The gold does not belong to them but to its citizens.

I found this very fascinating:

Iran pulls assets out of Europe banks

Mon, 09 Jun 2008, 21:27:09, Press TV

Iran has withdrawn a huge sum of its foreign exchange reserves from European banks and has deposited some of it into Asian banks.

"Based on a decision made by a government working group, Iran has switched to 'genuine' assets like gold and shares... We have decreased our foreign currency holdings in international banks," said Iran's Deputy Foreign Minister for Economic Affairs, Mohsen Talaei.

"A portion of Iran's foreign exchange reserves, however, was moved to Asian banks," he added in his interview with Borna news agency published on Monday.

According to the official, Iran keeps only the minimum currency it needs for its accounts to remain open in Europe but manages its accounts in Asia in a way that will allow trade transactions to continue.

Iran has abandoned the dollar in oil trading in favor of the yen, citing the weakness of US currency for its decision.

Iran has been selling nearly 700,000 barrels of crude oil to Japan on a daily basis in yen since mid-2007, Talaei concluded. The US has imposed sanctions against Iranian banks and continues to persuade countries to halt their business relations with Tehran.

While some are of the opinion that sanctions have crippled Iran's economy, the refusal of financial institutions in Russia, China and Middle Eastern countries have proven such efforts futile.

Iran's annual international trade has reportedly exceeded 65 billion dollars and some foreign banks that had frozen Iranian assets have released the country's holdings.


Please note that the Foreign Minister has announced switches to “genuine” assets like gold and shares. If Iran takes its oil and accumulates gold, you can bet the farm that Israel will be called upon to strike. They already to not price its oil in dollars and that is a defacto declaration of war.

We learned today that Argentina has basically defaulted on its sovereign debt. It is inflating at 25% but they are indexing the inflation bonds at only 8%. Investors are coughing up these bonds in gigantic numbers. Nobody is out there wishing to buy these bonds.

Today we witnessed riots in the streets of Madrid and in Hong Kong because of the rising fuel prices. The high price of oil is having a devastating effect on all economies. The bankers who are long oil could not care less. They need oil at 150.00 to repair their balance sheet.

Speak to you tomorrow


Monday, June 9, 2008

Commentary June 9.08


Good evening Ladies and Gentlemen;

Gold closed down by  70 CENTS  to rest at 894.80.  Silver fared worse closing down by  22 cents to close at 17.15.


The open interest on gold fell Friday by 2000 contracts and the new Oi is 400,000.  This is despite the huge rise in the price of gold on Friday.  This is nothing short of spectacular.  Certain cartel members thought the heat was getting to them so they decided to exit the fray.  The largest banks continued to supply the paper and  major players bought these future contracts. 


Today, the cartel started their raid early and they met with stiff buying.   The raid was in full force at 1 pm well past the London afternoon fix.


The big news of the day was the loss of 2.88 per share at Lehman Brothers.  I guess I am vindicated as I told you on numerous occasions that these guys are lying.   A few days ago, their  spokesman came out and said everything was Ok and that were going to report good profits.  It is amazing what a few days will do.  Not only did they lose 2.88 per share but that they will need to raise 6 billion dollars to shore up its balance sheet.


Lehman Brothers recorded a net fall in revenue from 10 billion all the way down to 2.2 billion.  I stand by what I said to you last week:  these guys are bust!!


Today, we witnessed the entire banking sector in turmoil.  The SKF which is a banking index in reverse, rose a full 6 points signalling a huge problem in the banking sector.  The Mortgage Index  known as the BKW also  rose signalling the mess in the housing-mortgage field to be full throttle!.  On Friday, I indicated to you that the Shiller Index on house pricing showed a big 14.1% drop in house prices for the first 6 months.


Today we learned that  the subprime AA bonds are now priced at 12 cents on the dollar.  The A rated bonds and BBB bonds are about 5 cents on the dollar.

The fall out from the S and P reduction in the rate of Ambac and MBIA is having devastating effects on municipalities and pension holdings throughout the usa.  The downgrade will force liquidation of many of these bonds with nobody out there to purchase them.


Spain’s Premier, Zapatero  came out today and scolded Trichet for even thinking of raising interest rates over in Euroland.   Spains economy is now in turmoil and they are joined in that category by Iceland, Greece, Turkey, and ItalySpain’s house prices have fallen by 15% from Sept and 98% of their mortgages are all variable.   They are all priced off the 3month Libor rate and it is rising. After Trichet announced a possible rate rise, the Libor rate rose by 32 basis points to 5.24%,   A rise in mortgages will bury Spain and force its bankruptcy.  It has no foreign reserves and must now rely on the ECB for euro help.


This came late today:


12:17 NY Fed President Geithner discusses the need for financial regulation
Geithner says that the 17 major financial institutions are meeting this afternoon to discuss changes with respect to derivatives. The firms will establish a clearing house for credit default swaps. Geithner did not comment on the outlook for interest rates or the economy.  End

Looks to me like Wall Street is burning!!.  Most bank stocks were hit hard today with Citibank under 20.00 , Lehman Brothers broke 30.00 and the granddaddy of them all JPMorgan broke 40.00.


Bill King came out today and basically reinforced what I told you on Saturday that the  B/D fabrication added 217000 of  phantom jobs.


India announced a fall of 59% in gold imports.  This is not the marriage season as it begins in earnest in Sept.  However I doubt very much their figures.


See you tomorrow,







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