Saturday, August 9, 2008

commentary August 9.08.

www.lemetropolecafe.com.

 

Good evening Ladies and Gentlemen:

 

On Thursday night , news came out on the settlement with respect to Citibank and the Attorney Generals of various states regarding the civil fraud case on auction rate securities.

 

We also heard that fighting erupted in Georgia who is in dispute with Russia on  contested land ownership.  A day earlier the major pipeline bringing 1 million barrels of oil to western markets in Turkey was blown up.

One would expect gold to be up in Toyko and instead it was down a few dollars.  Lenny and I knew that a huge raid was on and that 850 gold was the target.  I wrote to you saying that Friday was going to be rough and rough it was.  Gold closed down  17.00 to 855.00 and silver fell 90 cents to 15.32.

 

James Turk noticed that on the Fed webpage that foreign deposits rose by a huge 38% on an annual basis from July 16.08 to Aug 8, a gain of 51 billion dollars.  This intervention along with black box models propelled the usa dollar to record levels and with cartel members help  bombed gold, silver and oil. The central banks were caught red handed. 

 

The open interest on gold comex fell by a whopping 26000 to 376000 on Thursday.  Our bet is that another 10,000 or so left on Friday.  The COT report also indicated that the commercials covered a huge numbers of their gold shorts.  We saw capitulation on Friday although it was on the criminal side with respect to actions by cartel members and collusion with central banks globally.

 

The key price that had to be defended was 850.00  It would be a blow to gold bugs if the price pierced this level.  The price of 850 is the previous high of gold set in 1980 and it took 28 years to get to that level again.  The fact that it took 28 years means a formidable resistance  of 850 on the downside was created.  The cartel threw 160,000 gold comex contracts and drove the price right to 850 but it held and the price immediately bounced from that level.  They tried again and the gold price stopped at 851.00. 

 

The silver OI for some strange reason rose on Thursday by 1000 to 135000 on a falling silver price.  The only explanation is that the specs were supplying the paper.  The commercials were buying silver back but not in the same quantity as  in the gold comex pits.

 

As for the economic news of the day, I will spend time on banks and on the consumer.

 

During the day, we learned that the consumer which represents 70% of the GDP saw credit card balances for the month of July jump from 7 billion to over 14 billion dollars a record high.  This is a huge 100% gain month over month.

 

The consumer obviously is strapped and is relying on the credit card for food purchases.  WalMart  reported its sales for the quarter have slowed and remarked that sales at the end of the month are brisk but in the middle of the month, volume is low.  The consumer is strapped.

 

This is putting a lot of pressure on the state and Fed finances.  The state is not getting his sales taxes and the Fed’s income  from taxes are falling.

 

Lets take California as an example. California is the world’s sixth largest economy with 31 million people. Two years ago it had a10 billion dollar deficit and for the year 2007-2008 , it projected a deficit of  14 billion only to come in at a huge 16 billion shortfall.  They now expect a shortfall of between 20-22 billion dollars because of the real estate meltdown and forest fires.  The states revenue is declining but expenditures are rising.   Their fiscal year is July 2008 to June 30 2009 and they still do not have a budget.

 

We are seeing commercial mortgages failing for the first time.  Bankers sliced and diced many commercial property mortgages to investors and now these are starting to fail. We are seeing many chain failures such as Linen and Things and closures of stores in malls, like Disney and Lord and Taylor.  Many workers are being laid off.

 

On the banking front you will witness bigger bank losses from this point onward.

 

I Initially told you back in 2007 that the subprime mortgage sector of the economy is around 750 billion and that probably 400-500 billion will fail.  So far about 450 billion of loans have been written off so far.

 

The rescue of Fannie and Freddie Mae by Paulsen was needed as they knew they were in trouble.  Fannie reported on Friday morning with a loss of 2.52 per share or 2 and ½ billion dollars worth of losses.’They cut their dividend to 5 cents from 25 cents. ( They are receiving funds from the fed and still paying a dividend.  It makes no sense at all.)

This was an unaudited statement so in truth the real loss is a number far greater than that.

 

On Wednesday, Freddie`s President Mr Syron announced that he was still well capitilized and everything would be OK and that they would not have to raise funds.   Just look what they announced on Friday morning:

 

NEW YORK, Aug 8 (Reuters) - Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) said Friday it plans to sell $3 billion of reference bills on Monday, Aug. 11.

The scheduled offerings include $2 billion of three-month bills due Nov. 10, 2008, and $1 billion of six-month bills due Feb. 9, 2009.

Settlement is Aug. 12.

The bills will be sold over the Internet in a Dutch auction. In such uniform price auctions, successful bidders pay only the price of the lowest accepted bid rather than the actual price as in a conventional multiple-price auction.

Bids will be accepted from authorized dealers from 8:00 a.m. (1200 GMT) until 9:45 a.m. (1345 GMT)

 

Late Thursday and early Friday we heard about a settlement with respect to Citibank and their civil fraud case with Attorney Generals in NY  (Cuomo) and  Connecticut (Blumenethal) plus other states.  I reported to you late last year about a little known  money market auction facility  (auction rate asset backed mortgages).  This market was invented by Merrill Lynch and they got Citibank and others to participate in the parking of cash for a higher interest rate than regular money markets.  They claimed to all that these were safe.  An auction was held weekly and the interest rate was bid by participants who wanted to park cash for a week or so.  The backing were longer term mortgages made up mostly of student loans and some real estate.  It had the implied backing of Citibank and Merrill Lynch.  In Feb. they folded their tents leaving 400 billion dollars worth of paper basically worthless.  The owners of notes were furious and sought the help of attorney generals and in the end they were victorious.

 

The settlement:  Citibank agreed to pay back 7.5 billion of individuals by Oct 31.08 and agreed to buy back  institutions to the tune of 12.00 billion dollars from Jan 09 until the end of the 09 year.

 

Soon after this announcement came word that Merrill Lynch has offered voluntarily to pay back 10 billion of worthless notes commencing in January.

 

Friday morning, saw  Union Bank of Switzerland  announce a settlement of 19.4 billion which consisted on paying off individuals by the end of 2008 and institutions in 2009.

Bank of America announced that it would study the announced settlement and would respond in kind.

Then came the haughty response of Credit Suisse:

Credit Suisse auction-rate debt suit may start frenzy
Fri Aug 8, 2008 8:34am EDT

By Duncan Martell

SAN FRANCISCO (Reuters) - Europe's largest computer chip maker STMicroelectronics NV (STM.PA: Quote, Profile, Research, Stock Buzz) has sued Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) for allegedly placing $450 million of its cash into auction-rate securities without authorization, and said a dozen or more companies with billions invested were victimized.

STMicro claimed in its lawsuit that "at least a dozen other multinational corporations are victims of the same scheme carried out by the same group of brokers and directors at Credit Suisse Securities and furthered by Credit Suisse."

STMicro said it believed more than $2 billion of these clients' money ended up invested in auction-rate securities.

"The banks are playing chicken here, thinking that companies like STMicro aren't going to take the steps they did," said Steve Williams, a plaintiffs attorney at law firm Cotchett, Pitre & McCarthy in Burlingame, California. "Banks are going to be very mistaken in that judgment, and I think a lot of big entities are going to start filing these to get their cash out."

More…

When the dust settles expect 400- 500 billion dollars that will be paid by these fraudsters to their victims.  The amounts include interest, penalties and fines.

Expect many collateral damage suits. ( E.g.   the investor lost on a deal that he could not close etc….)

Expect all moneys to come from the Fed begging bowl.   I doubt if anyone stupid enough would invest in these guys any more.

 

Merrill Lynch  early in the week sold all of its CDO`s at a haircut price of 22 cents on the dollar and they funded  the purchase with their own money.

They paid  1 billion to their sovereign wealth provider for losses already occurred on their investment.  It looks like they are going to be needing a lot more money.  Please note that no other bank has lowered its CDO level to 22 cents matching Merrill;s.

 

We are now entering the next phase of the mortgage fiasco.  The ALT A`s have just started and already the delinquencies are running 50%.  This market is 1.2 trillion dollars, so this is going to be devastating to our bankers.  These loans are also known as Liar Loans or loans given without any documentation.  However the recepients are a better class of people than subprime.  They are walking away just the same as the subprimers.

 

However the biggest defaults are going to occur in the ARMs resets or as they are termed ;  Option Adjustable Rate Mortgages.  Together with Prime Mortgages these total 1.5 trillion dollars.  The bankers are freaking out because the home owners are already walking or refusing to pay and the adjustments have just started. Price resets involve monthly costs rising 50% per month. In cases were triggers  are hit for negative amortized loan balances having grown by 10 to 15% above the original loan balance, past interest and penalties are added atop new principal payments.  Often one can then expect their monthly bill to triple due to these onerous conditions.  Defaults will occur on most of these and this is why most will abandon their home or stop paying.

 

Very few analysts have factored in these ARMS resets.  They have not factored into their analysis on banks,  any of the commercial mortgages which are also faltering.  The market for the ARMs is estimated to be 5 x the subprime mortgages, so you can visualize the damage that will be created.

 

All of the usa banks will become insolvent and then bankrupt because of this.  There are only two ways to measure a bank`s health.

1.      The  Price over Earnings Ratio

2.       Price over book ratio.

The banks have no earnings so no 1  and no 2 are void.  All fail because they have no profits.

 

Banks are not lending any money as we see commercial paper decline by 60%.  Libor rates remain high globally which is a signal that banks do not trust one another.  A  bank does not lend money when it is broke.  Instead it fakes its solvency and fights to con investors into investing  into this entity without any controls.

The bank seeks funds from the Fed and they exchange  toxic notes for fresh cash.  Cash is needed to prevent a run on the bank as depositors look for their cash  The non borrowerings from the Fed remain at 120 billion dollars as of last week.( In other words all depositors money is toast.) The banks  borrow from the Fed and trade against ordinary investors in a fight for survival.  They collude in order to save themselves.

Expect, the entire nationalization of all the banks. 

After the ARM`s resets expect home loan defaults to rise . To Canadians these are like 2nd mortgages which stand behind the primary mortgage.

Expect 100% of  losses to occur here.  These will commence once the primary resets start in earnest.  As an example, Wells Fargo has 84 billion of home loans on its balance sheet.  It is listed as a prime asset.  Good luck to them. They will get zero cents on the dollar for these.

Fannie and Freddie will cost the Fed 1.5 trillion dollars as they must guarantee all of these mortgages.  This is the reason for the raising of the Federal Debt to 10.6 trillion dollars.

The investment community in concert refuse to comment on this fiasco despite alarm bells sounding from these individuals:

 

1,Nouriel Roubini..noted economist with Sterns Business College.  NY.  He told Wall Street for two years what was going to happen and they all ignored him.

2. Larry Lindsay has been sounding the bell on Fannie and Freddie.

3. Meredith Whitney, chief analyst with Oppenheimer has been reporting on the affairs of Citibank and Lehman and she was originally scoffed at.

4. Alan Greenspan re the insolvency of Fannie and Freddie…

With respect to the civil fraud case, the Fed will no doubt have to fork over400-500 billion dollars of fresh money for trash.  The problem here is the money goes out for settlement and cannot be used by the companies.

As of Friday morning, the entire financial world blew up.  Smoke is all around Wall Street.

Have a great weekend

Harvey.

 

 

 

 

 

 

 

Thursday, August 7, 2008

August 7.08 commentary.

www.lemetropolecafe.com

 James Joyce table.

 

Good evening Ladies and Gentlemen:

 

Gold closed down by 4.50 to 869.40 and silver fell by 25 cents to 16.21

 

The open interest on gold comex fell  by 3300 contracts to a low of 404,000.  With about 4000 contracts still standing the real OI is around 400,000.  With some liquidation today, the total OI should be considerable south of 400,000.

 

The silver OI continues to confound.  It rose another 1300 contracts to around 133000.  This defies logic. 

As a matter of fact all data at the comex seems bogus to me.

 

There are 5 big news events which did have a profound effect on the market today.  The Dow fell by 224 points.

 

The first big news was the loss at AIG.  It suffered a huge loss and then stated that it will probably have to raise capital.  It’s stock fell  5 and ½% down to 23.00 and change-

Here is the link:

 

AIG Plummets After Insurer Won't Rule Out Raising More Capital

Aug. 7 (Bloomberg) -- American International Group Inc., the world's biggest insurer, fell the most since the October 1987 stock market crash after the company said it won't rule out raising more capital.

``It's very hard to predict right now when and if we'll need more capital,' Chief Executive Officer Robert Willumstad said today in a conference call with analysts. ``Future losses can change that assumption and we're obviously dependent on the condition of the U.S. housing market.'

-END-

During the session Wal Mart announced sales below market expectations:  Here is the link:

Wal-Mart July sales below Wall Street view

NEW YORK, Aug 7 (Reuters) - Wal-Mart Stores Inc on Thursday reported a 3 percent rise in July sales at U.S. stores open at least a year, below Wall Street estimates, and issued a cautious forecast for August sales as shoppers run out of extra cash from tax rebate checks.

Analysts, on average, were expecting July same-store sales to increase 3.4 percent, according to Thomson Reuters Estimates, while Wal-Mart had forecast a gain of 2 percent to 4 percent.

"With the end of the stimulus checks, we know consumers are spending more cautiously, and we continue to see a pronounced paycheck cycle at the end of the month," said Eduardo Castro-Wright, head of Wal-Mart's U.S. operations.

 

After Freddie’s disastrous results, the wall street journal reports that Freddie is in total denial that it needs to raise capital.

I enclose the Wall Street’s editorial today:

20:48 FRE Heard on the Street says Freddie Mac needs to bolster its balance sheet ASAP - WSJ (6.99)
The Journal reports that Freddie seems to be in denial about the health of its balance sheet, noting that the firm touted the fact that it had core capital of about $37B at the end of Q2, rather than negative equity of $1.2B, as is the case when using GAAP principles. The paper adds that while the GSE may be waiting for its stock price to improve before raising new capital, shareholders may suffer even greater losses when considering the such hesitancy in combination with its rather bleak outlook for the housing market.
Reference Link (subscription required)

 

The jobless claims for the week rose by 7000 to a high of 445000.  The economy is very weak.

 

However the big news of the day was the settlement by Citibank with all the state attorney generals on the civil fraud case.

Citibank agreed to buy back 7.5 billion dollars of auction rate securities sold to individuals and 12 billion that was sold to institutions.  The total bill was 19.5 billion that has zero market.  They agreed to pay a criminal fine of 100 million dollars.  They have until November to pay the bill.

Where on earth are they going to get this money?

 

A few hours ago  (6.pm).  Merrill Lynch agreed to similar terms and they agree to buy 10 billion of these worthless securities.

 

UBS has not come to the table yet.

 

ON August 12.08 the order which forbids the naked shorting of bank shares is removed.  Mr Cox then has a major decision:

If he decides that no naked shorting is allowed then gold shares fly as the cartel need to buy back billions of these shares that have not been covered.

If  he decides that naked shorting is allowed which is criminal, he is going to have class action law suits to contend with.

I have linked a commentary from  Bix on this matter:

Hi Bill
Here's a very telling fact that the Gold/Silver Cabal is fighting for their life.

As we all know, the SEC Order on the "no naked shorting" for 17 financial stocks (plus Fannie/Freddie) is the biggest financial scam in the history of "free markets" especially since only "market makers" are allow to continue to naked short them at their hearts content.

http://globaleconomicanalysis.blogspot.com/2008/07/sec-issues-order-to-protect-those-most.html

I'd call this the biggest financial con job in plain view in the history of the world. I can't wait to see what happens on August 12th when the ban is lifted!

But let's look at who these crooks are and how they are involved with the rigging of gold and silver!

Of the 17financial stock on the "No Short" list 10 of them are "Authorized Participants" in either GLD or SLV or both!
----------------------------------

BNP Paribas Securities Corp.
Bank of America Corp.
Barclays PLC - GLD/SLV "Authorized Participant"
Citigroup Inc. - GLD/SLV "Authorized Participant"
Credit Suisse Group - GLD/SLV "Authorized Participant"
Daiwa Securities Group, Inc.
Deutsche Bank Group - GLD/SLV "Authorized Participant"
Allianz SE
Goldman Sachs Group Inc. - GLD/SLV "Authorized Participant"
Lehman Brothers Holdings Inc. - GLD/SLV "Authorized Participant"
Merrill Lynch & Co. - GLD/SLV "Authorized Participant"
Morgan Stanley
Royal Bank ADS
HSBC Holdings PLC - GLD/SLV "Authorized Participant"
JPMorganChase & Co. - GLD/SLV "Authorized Participant"
Mizuho Financial Inc.
UBS AG - GLD/SLV "Authorized Participant"

That really only leaves a couple of ETF "Authorized Participants" out of the no short list. These are CIBC World Markets, Fimat USA, PruGlobal Securities...

And the ring leader of Computer Market Rigging for the Gold/Silver Cabal....

EWT, LLC (http://www.lemetropolecafe.com/Pfv1.cfm?pfvID=6650&SearchParam=road%20to%20roota

Of course EWT is private and out of the reach of the "Official Regulation".

Has anyone noticed that "E-W-T" may be a tricky play on "Elliot Wave Theory" or as we at GATA like to call it "IDIOT WAVE THEORY"?! Could it be that they use key Elliot Wave Theory points to sucker in the "Black Box Geeks" that Jim Sinclair loves to point out? How obvious do they have to make it?

Oh what fun...

As Knute Rockne said:

"We're gonna get 'em on the run boys and once we get 'em on the run we're gonna keep 'em on the run. And then we're gonna go go go go go go and we're not gonna stop til we get across that goal line!"

Buckle up!
Bix

Expect tomorrow to a rough day as Fannie is going to report.  The results are going to be horrendous and thus the cartel will try and raid again.

See you on Saturday

Harvey.

 

 

 


* * * *

 

 

 

 

 

August 7.08 commentary.

www.lemetropolecafe.com

 James Joyce table.

 

Good evening Ladies and Gentlemen:

 

Gold closed down by 4.50 to 869.40 and silver fell by 25 cents to 16.21

 

The open interest on gold comex fell  by 3300 contracts to a low of 404,000.  With about 4000 contracts still standing the real OI is around 400,000.  With some liquidation today, the total OI should be considerable south of 400,000.

 

The silver OI continues to confound.  It rose another 1300 contracts to around 133000.  This defies logic. 

As a matter of fact all data at the comex seems bogus to me.

 

There are 5 big news events which did have a profound effect on the market today.  The Dow fell by 224 points.

 

The first big news was the loss at AIG.  It suffered a huge loss and then stated that it will probably have to raise capital.  It’s stock fell  5 and ½% down to 23.00 and change-

Here is the link:

 

AIG Plummets After Insurer Won't Rule Out Raising More Capital

Aug. 7 (Bloomberg) -- American International Group Inc., the world's biggest insurer, fell the most since the October 1987 stock market crash after the company said it won't rule out raising more capital.

``It's very hard to predict right now when and if we'll need more capital,' Chief Executive Officer Robert Willumstad said today in a conference call with analysts. ``Future losses can change that assumption and we're obviously dependent on the condition of the U.S. housing market.'

-END-

During the session Wal Mart announced sales below market expectations:  Here is the link:

Wal-Mart July sales below Wall Street view

NEW YORK, Aug 7 (Reuters) - Wal-Mart Stores Inc on Thursday reported a 3 percent rise in July sales at U.S. stores open at least a year, below Wall Street estimates, and issued a cautious forecast for August sales as shoppers run out of extra cash from tax rebate checks.

Analysts, on average, were expecting July same-store sales to increase 3.4 percent, according to Thomson Reuters Estimates, while Wal-Mart had forecast a gain of 2 percent to 4 percent.

"With the end of the stimulus checks, we know consumers are spending more cautiously, and we continue to see a pronounced paycheck cycle at the end of the month," said Eduardo Castro-Wright, head of Wal-Mart's U.S. operations.

 

After Freddie’s disastrous results, the wall street journal reports that Freddie is in total denial that it needs to raise capital.

I enclose the Wall Street’s editorial today:

20:48 FRE Heard on the Street says Freddie Mac needs to bolster its balance sheet ASAP - WSJ (6.99)
The Journal reports that Freddie seems to be in denial about the health of its balance sheet, noting that the firm touted the fact that it had core capital of about $37B at the end of Q2, rather than negative equity of $1.2B, as is the case when using GAAP principles. The paper adds that while the GSE may be waiting for its stock price to improve before raising new capital, shareholders may suffer even greater losses when considering the such hesitancy in combination with its rather bleak outlook for the housing market.
Reference Link (subscription required)

 

The jobless claims for the week rose by 7000 to a high of 445000.  The economy is very weak.

 

However the big news of the day was the settlement by Citibank with all the state attorney generals on the civil fraud case.

Citibank agreed to buy back 7.5 billion dollars of auction rate securities sold to individuals and 12 billion that was sold to institutions.  The total bill was 19.5 billion that has zero market.  They agreed to pay a criminal fine of 100 million dollars.  They have until November to pay the bill.

Where on earth are they going to get this money?

 

A few hours ago  (6.pm).  Merrill Lynch agreed to similar terms and they agree to buy 10 billion of these worthless securities.

 

UBS has not come to the table yet.

 

ON August 12.08 the order which forbids the naked shorting of bank shares is removed.  Mr Cox then has a major decision:

If he decides that no naked shorting is allowed then gold shares fly as the cartel need to buy back billions of these shares that have not been covered.

If  he decides that naked shorting is allowed which is criminal, he is going to have class action law suits to contend with.

I have linked a commentary from  Bix on this matter:

Hi Bill
Here's a very telling fact that the Gold/Silver Cabal is fighting for their life.

As we all know, the SEC Order on the "no naked shorting" for 17 financial stocks (plus Fannie/Freddie) is the biggest financial scam in the history of "free markets" especially since only "market makers" are allow to continue to naked short them at their hearts content.

http://globaleconomicanalysis.blogspot.com/2008/07/sec-issues-order-to-protect-those-most.html

I'd call this the biggest financial con job in plain view in the history of the world. I can't wait to see what happens on August 12th when the ban is lifted!

But let's look at who these crooks are and how they are involved with the rigging of gold and silver!

Of the 17financial stock on the "No Short" list 10 of them are "Authorized Participants" in either GLD or SLV or both!
----------------------------------

BNP Paribas Securities Corp.
Bank of America Corp.
Barclays PLC - GLD/SLV "Authorized Participant"
Citigroup Inc. - GLD/SLV "Authorized Participant"
Credit Suisse Group - GLD/SLV "Authorized Participant"
Daiwa Securities Group, Inc.
Deutsche Bank Group - GLD/SLV "Authorized Participant"
Allianz SE
Goldman Sachs Group Inc. - GLD/SLV "Authorized Participant"
Lehman Brothers Holdings Inc. - GLD/SLV "Authorized Participant"
Merrill Lynch & Co. - GLD/SLV "Authorized Participant"
Morgan Stanley
Royal Bank ADS
HSBC Holdings PLC - GLD/SLV "Authorized Participant"
JPMorganChase & Co. - GLD/SLV "Authorized Participant"
Mizuho Financial Inc.
UBS AG - GLD/SLV "Authorized Participant"

That really only leaves a couple of ETF "Authorized Participants" out of the no short list. These are CIBC World Markets, Fimat USA, PruGlobal Securities...

And the ring leader of Computer Market Rigging for the Gold/Silver Cabal....

EWT, LLC (http://www.lemetropolecafe.com/Pfv1.cfm?pfvID=6650&SearchParam=road%20to%20roota

Of course EWT is private and out of the reach of the "Official Regulation".

Has anyone noticed that "E-W-T" may be a tricky play on "Elliot Wave Theory" or as we at GATA like to call it "IDIOT WAVE THEORY"?! Could it be that they use key Elliot Wave Theory points to sucker in the "Black Box Geeks" that Jim Sinclair loves to point out? How obvious do they have to make it?

Oh what fun...

As Knute Rockne said:

"We're gonna get 'em on the run boys and once we get 'em on the run we're gonna keep 'em on the run. And then we're gonna go go go go go go and we're not gonna stop til we get across that goal line!"

Buckle up!
Bix

Expect tomorrow to a rough day as Fannie is going to report.  The results are going to be horrendous and thus the cartel will try and raid again.

See you on Saturday

Harvey.

 

 

 


* * * *

 

 

 

 

 

Wednesday, August 6, 2008

August 6.08 commentary.

www.lemetropolecafe.com.

   James Joyce table.

 

Good evening Ladies and Gentlemen:

 

Gold closed down in regular hours by 4.50 to  874.40 although it rose in the access market back to 879.00.  Silver fell by 11 cents to 16.46.  It rose to 16.67 in the access market.

 

The open interest on gold comex fell dramatically by 9000 contracts to 408000.  There are about 4000 contracts left to be delivered which leaves the Oi at about 404000.  If you include the 4000 already delivered, the OI declined to 400,000 which is the bottom as it will be very difficult to fleece anybody here.  These are all  in strong hands.

 

Interesting enough the Oi on silver rose again to 133000 despite the fall in the silver metal price these past two days.   It looks to me like all of these are strong hand players.

 

On the economic front, there is a lot to tell you:

 

The most important news came from Freddie Mac, our illustrious hero in the mortgage banking field.  These doorknobs lost 800 million dollars or 1.53 per share instead of the projected 50 cent loss.

They slashed their dividend by 80% down to 5 cents.  Freddie now has 22000 properties in foreclosure  and it expects to lose 26% on each loan instead of the projected 22%.

 

Their chairman, Mr Syron stated that he sees no end to this housing debacle and this is the worst housing mess since the great depression.  And this from Christopher Whalen from the

 

Institutional Risk Analytics, a very prestigious group:

 

``This correction is more severe than what we've seen,' Christopher Whalen, co-founder of independent research firm Institutional Risk Analytics in Torrance, California, said in an interview with Bloomberg radio. ``Both Fannie and Freddie are going to be profoundly insolvent by the time we're done with this.'…

-END

Mr Syron on CNBC talking about the housing crisis stated this;

 

 

Freddie Mac CEO-US home prices to fall up to 20 pct

WASHINGTON, Aug 6 (Reuters) - U.S. house prices will fall by up to 20 percent nationally and the current mortgage finance crisis is about half-way through, the chief of major mortgage financier Freddie Mac said on Wednesday.

"Previously, we said house prices would fall at least 15 percent nationally, peak to trough. Today's challenging economic environment suggests that the housing market is far from stabilizing," Richard Syron, the chairman and CEO of Freddie Mac, told investors in a conference call.

"As a result, we now believe that national home prices will fall 18 to 20 percent peak to trough. ... The long and short of it is that we now think that we are half-way through the overall peak-to-trough decline."

-END

 

In other news, Morgan Stanley stopped all home equity loans:

 

Morgan Stanley Said to Freeze Home-Equity Credit Withdrawals

Aug. 6 (Bloomberg) -- Morgan Stanley, the second-biggest U.S. securities firm, told thousands of clients this week that they won't be allowed to withdraw money on their home-equity credit lines, said a person familiar with the situation.

Most of the clients had properties that have lost value, according to the person, who declined to be identified because the information isn't public. The New York-based investment bank will review home-equity lines of credit, or HELOCs, monthly from now on, the person said yesterday…

-END

However, the big news from a financial point of view came from the news of a huge default rate in the AltA’s with a pay option ARMS attached.

These are subprime mortgages in which the buyer decides what he is going to pay initially.  If he pays only small interest up front, the remainder plus principal is added to the back end.

Also payments increase dramatically in the 3rd year as the adjustable rate mortgage kicks in. Here is  the passage:

 

 

Pay Option ARMs - Up to 48% Default Rate! First Federal Featured

Posted on August 5th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

I have been preaching that the ‘Pay Option Implosion’ will make the ‘Subprime Implosion’ look like a hiccup in states in which this loan program was widely used such as CA. This is because this loan program knows no socio-economic boundaries and was very heavy used in more affluent areas because of its ultimate affordability feature, negative amortization.

The Pay Option ARM (POA) is the most toxic of all loan programs with up to 80% of borrowers making the minimum monthly payment and acruing negative. Combine that with a house price crash of 32% in the past 13 months in CA and most of these borrowers owe more than their home is worth and are at an exponentially greater risk of loan default. Remember, these were once PRIME borrowers in many cases.

-END

 

Citigoup is in talks with the attorney General offices in NY where it is rumoured they are willing to settle on an 8 billion dollar usa. payment to holders of Auction Rate Securities.  They are going to pay a 100 million fine for their criminal action where they defrauded holders.

Watch for UBS and Merrill Lynch to fork over identical amts and pay equal fines.

Wall Street is nothing but a bunch of crooks.

 

 

Late in the day, the attorney General of Connecticut filed suit against Countrywide claiming that they misled investors and did bullying tactics in their pursuit of mortgage buyers for homes.

 

It is interesting that Bank of America is not named because the act occurred before the takeover.   Countrywide has no money to defend the action yet Bank of America does.

The question now is will Bank of America fork over dollars to Countrywide to get them off this indictment.  Remember these guys have not merged yet.

 

There have now been many publications on the banking mess in the usa.  It is also alarming to many that  key authors are stating that we NO LONGER HAVE FREE MARKETS.\

Markets are manipulated from the wee hours of the morning right through 5 oclock.  The commodity desks are raided  as they bombard the oil desk, the corn desk, the gold and silver  desk, you name it, these bums are there in Orwellian fashion controlling the strings.

 

 When you hear Rick Santelli of CNBC state that government is everywhere, you know we have problems.

 

It is wrong for brokerage firms to turn a blind eye to these situations.  All professions police themselves.  These guys do not.

It is bad when you have the commissioner of the SEC applaud the criminal action of naked shortings. (Christpher Cox)   We now have a situation where the back room cannot differentiate between real shares and counterfeit shares.  The number of failure to deliver certificates total in the billions.

It is bad when the banks use the proceeds of naked shorts of gold and silver share to repair their balance sheets. These guys borrow money from the Fed at 2% interest and instead of loaning out the money they bomb the commodities in criminal fashion. 

It is bad when the commissioner of the CFTC  Mr Lukken, turns a blind eye when every day 150,000 comex contradts or 15 milllion oz worth of gold is supplied by banking cartel members on a daily basis.

The world only produces 72 million oz per year.  And the comex is not the largest exchange trading in gold.

The LBMA trades over 70 million oz per year.  The OTC market is an unknown but rumoured to be north of 50 million oz.  Then comes comex and then Dubai and now finally China.

Correct me if I am wrong, but at last count commercial banks  have not figured out yet how to print gold.  Mr Lukken does not go behind the commercial comex shorts to see if gold and/or silver is behind these crooks.

 

Speak to you tomorrow.

Harvey.

 

 

 

 

 

 

 

 

 

 

 

 

 

Tuesday, August 5, 2008

August 5.08 commentary.

www.lemetropolecafe.com.    James joyce table.

 

Good evening Ladies and Gentlemen:

 

Today was a raid to beat all raids.  Gold closed down by  20.80 to 878.50.  Silver declined by 56 cents to 16.57

 

First the statistics:

 

The usa dollar climbed above its 200 day moving average a feat not accomplished for 4 years.

Gold closed below its 200 day moving average, a feat not accomplished for 2 years.

 

The open interest on gold comex rose by 8000 contracts despite the fall in gold.  The rumour was liquidation by hedge funds.  With OI rising that is impossible.

Generally when you get Oi rising in a badly falling market, the entire sales are short sales.

 

The XAU divided by gold rose to a high of 5.95 a level not seen since 2000.  These were  the days that gold hovered around 260 with the XAU at 42 through to 48.  The highest level ever reached was 6.33. The only mine that was profitable then was Barrick who forwarded 17 million oz of gold and basically bankrupted the industry.  Barrick had JPMOrgan has its counterparty supplying the gold and doing all of its wonderful derivative deals.

 

Today there is only 45 million oz of forwards from all the mines down from the height in 2003 of 100 million oz.  The two leading shorters are Barrick who now has 9.6 million oz forward and Anglo Gold who is short 6.5 milllion oz.

 

In 2000 Anglo Gold was marginally profitable.  All of the non hedgers were basically basket cases.

 

Now lets go forward to today.  Most mines are still profitable at 880.00 as their mining costs are still around 500-600.00.  They will just cut their exploration costs down to zero and mine the higher grade stuff.

Back in 2000,  you were just trading dollars.

 

So today, a gold share xau of 147 and a gold price of 874.00 just does not compute.  Actually, when the xau was 147 the price of gold in Dec 2005 was 550.00 usa.  Of course, the usa dollar was higher.

And yet interest rates were higher.

 

Today, we have interest rates at 2% and the dollar low.  The whole situation seems very fishy to me.

 

We have been told on countless times that the service sector is the strongest sector in the usa economy.  Guess again:

 

U.S. service sector shrinks slightly in July - ISM

NEW YORK, Aug 5 (Reuters) - The U.S. service sector shrank slightly in July but by less than economists had expected, according to a report released on Tuesday, while inflation pressures moderated.

The Institute for Supply Management said its non-manufacturing index came in at 49.5 for July from June's 48.2. A reading below 50 signals contraction.

Economists expected a result of 48.5, according to the median of their forecasts in a Reuters poll. The 75 forecasts ranged from 47.0 to 52.5.

The service sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.

U.S. factory activity was unchanged in July from June, contrary to forecasts for a contraction, and inflation pressures moderated, according to a similar ISM report released on Friday.   end

 

The big news of the day was release of the FOMC results.  Bernanke and gang basically stated that there were equal risks to inflation as to growth.  I thought for sure he was going to leave out inflation as a worry and concentrate on the growth problem.

 

And guess what, the market responded to such wonderful news by bidding up the Dow 322 points despite banking worries.

 

The Wall Street journal reports on declining credit card asset backed securities issued by the banks.  It seems that business is sluggish.  Costs are rising and there remains great risk aversion.

It translates into higher interest rates for consumers and also forces companies to keep these instruments on the books and at lower realized values:

 

Here is the link;

 

20:47 WSJ discusses the latest signs of risk aversion in the asset-backed market
Citing data from JPMorgan, the Journal reports that issuance of credit-card asset-backed securities fell to $4.4B last month from $5.26B in June. Of interest, the July total was down 56% from the $10.08B issued in March. The paper adds that even when investors are stepping up to the plate to purchase securities tied to credit-card loans, they are demanding higher yields, as evidenced by the fact that risk premiums on such deals have blown out by as much as 10 bp to 25 bp in just the past month. According to the article, sluggish demand for such debt raises the borrowing costs for credit-card issuers, a dynamic that translates into higher rates for consumers. It also forces the companies to keep more loans on their balance sheets, further constraining liquidity.
Reference Link (subscription required    end

 

 

Now here is a man that earned the name  “the maestro” and for almost 19 years was the most revered person in the usa.  Please read what he said today:

 

18:53 Greenspan says more banks may be bailed out - FT
Greenspan's comments come in an article in Tuesday's FT. Despite the likelihood or more bailouts, Greenspan warns against a regulatory backlash that could weigh on stock prices around the world and possibly reverse the globalization process. According to Greenspan, the "insolvency crisis" will only end when home prices in the US begin to stabilize.  end

 

Please note the last line:   “according to Greenspan, the “insolvency crisis” will only end when home prices begin to stabilize.  What he really means is that it gets off the books of the banks.

 

Tom Bawden of the NY times writes that it looks like the amount of junk bonds that will default will quadruple this year:  Here is the link:

 

US junk-bond defaults may quadruple

Tom Bawden: New York

Defaults on American corporate junk bonds could more than quadruple in the next year as the declining economy in the United States severely restricts companies' ability to repay their debts, the Standard & Poor's ratings agency has said.

The rate of default on America's risky junk, or high-yield, corporate bonds jumped from a 25-year low of 0.97 per cent in December to 1.92 per cent at the end of June.

However, S&P said that it expected the figure to rise to 4.9 per cent by mid- 2009 and conceded that defaults could rise as high as 8.5 per cent.

By contrast, there have been no defaults on European corporate bonds in the past year, according to S&P's new report.

A default on the debt usually leads to bankruptcy and means that bondholders lose some or all of the money they are owed. Diane Vazza, head of global fixed-income research for S&P, said: "Things are going to get much worse yet. The situation in Europe will follow the US."

The increase in US corporate bond defaults has been accompanied by a rise in the number of household names whose bonds are slipping from relatively safe investment-grade status to junk. In the past 18 months, these have included BAA, the airports operator, and Emap, the media group.

Meanwhile, other companies that may have already been junk-rated have fallen farther down the ladder. General Motors, Ford and Chrysler have each had their credit ratings lowered a notch by S&P, to B-, putting them six steps below investment grade.

S&P says that 118 corporate bonds, with a combined value of $110.5 billion, face default. This compares with 78 at the end of 2007 and 64 a year ago.

end

 

 

One cafĂ© member retrieved Wachovia’s derivative position and frankly it shocked me. The total derivatives on Wachovia’s books is 4.3 TRILLION dollars.  Wachovia is the 4th largest bank in America.  I can now see the problems Bernanke is facing.

 

If the FDIC enter the premises of Wachovia central in Charlotte,  to protect depositors, they must get as much as they can for them.  It looks like their losses from “above the line”   (non derivatives) will approximate 150 billion dollars if you use 22 cents on the dollar re Merrill Lynch.

 

The FDIC would like JPMorgan to gobble up all the derivatives just like Bear Stearns.  However they have bankruptcy court to deal with and this will be tricky.

They may try a tender offer for Wachovia and not merge them just like Bank of America and Countrywide.  However shareholders of JPMorgan will smell a rat and throw a tantrum.

 

My bet is that Washington Mutual also has a big derivative problem.  I have dispatched no 2 son to ascertain these figures for me.  He is also doing Lehman and Citibank. 

 

 

Last night came news that the Bank of England had to convert 3 billion British pounds  into equity over at Northern Rock who saddled the central bank with a loss of 0.6 billion pounds.(600 million pounds).

Here is the link:

 

As you can see from the link below the actual Northern Rock results were worse than leaked to the BBC last night - the loss was nearly £600 million and the government is having to convert part of its loan to Northern Rock into equity. It is big news here for obvious reasons and is yet another reminder how tough life has become in the last 12 months in UK banking.

The government is converting £3 billion of its loan to Northern Rock into equity and attempting to pass it off simply as a book-keeping adjustment. I am sure the swap is needed, but it reflects the uncomfortable position that the quality of Northern Rock's assets look far less good than a year

http://news.bbc.co.uk/1/hi/business/7542251.stm

 

see you tomorrow

Harvey

 

 

 

 

 

 

 

 

 

 

 

 

 

Search This Blog

Loading...