www.lemetropolecafe.com (james joyce table).
Good morning Ladies and Gentlemen:
Gold closed up by 18.90 to 959.10 and silver also rose sharply up by 48 cents to 18.72.
The open interest on the gold comex continues to rise. When the dust settled OI increased by 7500 contracts to 453000 contracts. Silver went the other way down by 1500 contracts. The OI basis Thursday with respect to silver rests at 135000.
The COT report released after the market closed indicated that the commercials in gold were actively supplying the paper and the specs were buying the stuff. In silver some of the commercials are feeling the heat and vacating the arena.
And now for the economic news of the day:
First of all, I would like to report to you today (this is not in the Midas report) that the Federal Insurers took over IndyMac Bank at 3 pm Pacific time Friday afternoon. News of this event came after the posting of Midas.
We should all stand in silence for 1 minute in observance of the death of the
There are huge bets on this bank (credit default swaps) and this is going to cause ripple effects into derivatives on Monday.
The second biggest news of the day, is the fall in the stock price of Freddie and Fannie Mae. These two large Government Sponsored Agencies (GSE’s) have 5 trillion dollars of mortgages in which they own or guarantee.
Their borrowing costs have risen substantially over the last year basically making them insolvent.
I have highlighted the most important passage for you to read.
U.S. Weighs Takeover of Two Mortgage Giants
By STEPHEN LABATON and STEVEN R. WEISMAN
Under the plan, shares of Fannie Mae and Freddie Mac would be worth little or nothing, and any losses on mortgages they own or guarantee would be paid by taxpayers….
Officials have also been concerned that the difficulties of the two companies, if not fixed, could damage economies worldwide. The securities of Fannie and Freddie are held by numerous overseas financial institutions, central banks and investors…
Which leads to more of the same…
00:35 Executive branch considers having government take over Fannie Mae (FNM), Freddie Mac (FRE) - NYT
People briefed about the plan say officials are considering taking over either or both companies and placing them in a conservatorship -- but only if their problems worsen. The development would make shares worth little or nothing, and would mean taxpayers would pay losses on the mortgages the companies own or guarantee. The sources say the current administration is less enamored of a plan calling for legislation giving a government guarantee on the $5T of debt owned or guaranteed by the companies. The sources also stress that no action is imminent. Recall the Wall Street Journal reported the government was considering what to do 9-Jul (see comment).
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What is dangerous here are twofold:
1. the massive amount of dollars that will have to be paid by the FDIC.
2. the massive derivative losses that also must be paid.
The FDIC has room to bail out just one major bank. A hit of this size will send the
The Plunge Protection team issued a false statement at 3 o’clock yesterday afternoon suggesting that the Fed discount window was open to Fannie and Freddie. The Dow was down 200 points at that point , turned upwards rising to positive 20 points where another selling wave brought the Dow down by 132 points on closing.
The Dow Jones news service after the market closed indicated that there was no meeting that would allow Fannie and Freddie to borrow from the discount window.
There is no question that the Paulsen and company tried to rescue the market. They knew that Lehman Brothers had fallen badly and traded at 13.50 at the close. Two weeks ago rescue money came to Lehman as they issued stock at 28.00. I guess these new investors are not feeling very happy this morning. The SKF banking index rose to 174.50 at closing from 164.50. A rise indicates banking weakness. Two months ago the index was 96.00
I would also like to point out the Lehman brothers is a huge shareholder of Fannie and Freddie and the demise of these two GSE’s would almost certainly bankrupt Lehmans.
The day also saw the
Oil closed up by 3.50 to 145.30 on news of Israeli exercises in
In other economic news, the import prices component rose a huge 2.6% in June. They were expecting 2.0%. The cause was the huge rise in oil prices as this sets the stage for massive inflation to hit the shores of the
Thus: either foreigners are moving gold from
Ambrose Pritchard Evans in the UK Telegraph penned an article that is extremely scary. I have highlighted the passage for you:
Ambrose Evans-Pritchard: BIS slams central banks, warns of worse crunch to come "The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the
"These fears are not groundless. The magnitude of the problems yet to be faced could be much greater than many now perceive," it said. "It is not impossible that the unwinding of the credit bubble could, after a temporary period of higher inflation, culminate in a deflation that might be hard to manage, all the more so given the high debt levels."
Given the constraints under which the BIS must operate, this amounts to a warning that monetary overkill by the Fed, the Bank of
I would expect that there are going to be an emergency meeting set this weekend concerning the fall out in Fannie and Freddie. If we do not hear any news, expect a huge drop in the stock market on Monday.
Expect gold and silver to continue its advances as the cartel are running out of ammunition.
I wish you all a wonderful weekend and I will speak to you on Monday.