www.lemetropolecafe.com James Joyce table.
Good morning Ladies and gentlemen:
Gold closed down by 12.70 to 956.40 and silver fell by 53 cents to 18.12.
The open interest on the gold comex contract rose by 10,000 contracts to 493500 getting close to record levels. Silver’s Oi also rebounded from the previous session rising by 1500 contracts to 143500.
The commitment of traders report released after the market closed showed the aggressive stance of the commercials in both of these precious metals. In gold comex, the commercials (the biggies) added a whopping 32000 contracts to their already high short positions last week. However smaller commercial banks added 14000 contracts of gold as if they sense economic danger.
It is very clear that the big commercials (JPMorgan, Goldman, Morgan Stanley, HSBC, Scotia Mocatta,) need to cap gold and silver’s rise.
Yesterday, we saw the close of options expiry on shares. Gold fared pretty good and held up despite oil’s fall and the stock market rallying big time because of “better earnings” from the Citibank.
The SEC outlawed the shorting of bank shares and that sent the bank shares flying as there was no opposition to the purchase of banks. The repo pool money goosed the bank shares and the rout was on.
The Dow finished up by 50 points capping a three day rally.
Citibank lost 2.52 per share or 2.5 billion dollars. The world was expecting a loss of 3.5 billion dollars, so the market rejoiced and bid up all banking shares. Merrill Lynch reporting late Thursday, and disappointed Wall Street by losing almost 5 dollars per share. The street was expecting 1.50 per share loss.
On top of this Merrill Lynch reported that it took a loss on 12 billion dollars on its level 3 assets. It still has a long way to go as it is still knee deep I this quagmire.
Now comes word that Merrill Lynch had sold “Money Market” type of securities called auction rate preferreds. To cash these securities, an auction is performed twice monthly. It now seems that these money market instruments are totally illiquid. This week 6 billion dollars of these auction rate preferred failed. They represent 40,000 angry investors who thought they were investing in money market instruments. The total market for these relatively unknown securities is 360 billion dollars and Merrill Lynch is the primary dealer. More trouble is ahead for this company. I have appended the Midas article for you to read:
As for the second issue of the day, Croesus has been informed about a disheartening problem at Merrill Lynch--$6 billion of illiquid securities, called auction rate preferreds, that are owned by some 40,000 customers of the thundering herd.
It seems these 40,000 investors can't sell these supposedly secure money-market-type instruments, which require auctions, and turn them into hard cash. And the issuers of these securities--closed-end mutual funds, like some in the BlackRock group, municipal authorities and student loan organizations--can't raise the cash to pay off investors.
It was some months back that a shocked Croesus learned about auction rate preferreds, which represent an asset class worth $360 billion in the market. Soros and others of his ilk even admitted to Croesus that they had never, ever heard of them.
As a Comerica Securities memorandum explains why cash doesn't always keep pace with these instruments: "Recent failed auctions appear to have been caused by volatility in and tightening of the credit markets and waning investor confidence. Although there are no obligations for firms to back ARS [auction rate securities], auction agents that collect fees for running auctions used to step in with their capital to prevent failures when bidding faltered. However, these firms and broker-dealers have grown unwilling to commit their money to ARS after suffering significant credit losses stemming from write-downs of mortgage debt and various corporate debt instruments."
The memo bluntly states: "In other words, the credit crisis is still alive and causing intense investor suffering."
Imagine that. In the year 2008, you can't turn shares into cash, especially when cash is king!
Late yesterday afternoon we learned the results on the bankruptcy of Cheyne Financial capital over in
20:50 SIV auction draws bids of just 44 cents on the dollar - FT
The FT reports that the $1.8B worth of assets auctioned from the $7B SIV formerly known as Cheyne Finance this week drew bids of just 44 cents on the dollar. Recall that Cheyne was one of the first SIVs to enter receivership following the carnage in the credit markets. The article notes that under the restructuring, the auction will fund cash payouts for investors looking for an exit strategy, while unsold assets will be transferred to a new fund set up by Goldman Sachs. The FT goes on to point out that more than $170B remains stuck in SIVs.
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News coming from outside the
The central bank of
Trichet on Friday stated that he will not help out
The big news of the day, was the price in yield of the long bond (prices fall). The long bond fell in price to 114.32 as the Orwellians decided that banking shares and the stock market needed the necessary juice so they abandoned the long bond.
However, we must be mindful that with inflation rising big time with the CPI up 13% year over year and the PPI up over 22%, it would be foolhearty to invest in these instruments. Why would you put money earning 4% if you are inflating at 13%. You are behind by 9% a year and you still have to pay taxes on half your 4% gain. Not a very good bet.
I neglected to tell you on Wednesday, that the TIC showed an outflow of 2 billion dollars (a negative inflow) in June instead of a positive inflow of 61 billion dollars in May. It is quite possible that foreigners do not have an appetite for
It looks like the
Next week, expect the PPT to save the bonds but sacrifice gold and the stock market. The stock market will fall and gold will rise.
Please keep in mind that first day notice and the day that options on gold go off the board is the 28th of July. The cartel generally hit that day and probably the 25th as well.
As a side note: we have not been hit on any of my childrens 3 silver contracts. Meaning? A shortage of physical metal.
I will leave you with this quote from James Sinclair’s site authored by his friend Monty Guild and Tony Danaher:
“If the U.S. Fed, U.K. central bank, and other central banks continue to protect all of the institutions, all of the shareholders, and all the depositors, the crisis will actually be more prolonged and more difficult to come out of than if they let a lot of the smaller institutions go broke.
Thus far, it is obvious that the Fed and the
--Monty Guild and Tony Danaher
Have a great weekend