James joyce table
Good morning Ladies and Gentlemen:
This week certainly has been a rough week as gold and silver fell dramatically. Yesterday gold fell to 786.00 and silver plummeted big time to 12.81. I did not write on Thursday as I saw massive selling in Toyko and did not get a handle on the situation until now.
I will try and explain what is going on in the physical markets and financial markets.
First, the big blow off in the silver and gold comex was due to a hedge fund blowing up. They were short the dollar and long on silver and gold. They blew up and because they are on a 24 hr continuous contract, the closest exchange when a margin call occurred was Tocom and margin calls liquidated all their positions.
The big announcement of the day without a shadow of a doubt came from the
8/14/2008 04:02:00 PM, Posted by APMEX, No Comment
First - The Bad News.
We just received word, the
This comes at a time when many investors around the nation are scrambling to locate silver bullion and US gold coins while prices are attractively low. These low prices seem to be one of the driving factors in this recent shortage, as investor demand has dramatically increased.
Now, The Good News.
AMPEX still has very limited quantities of the 2008 - 1 oz Gold American Eagles in stock in stock and ready for im
For the time being, fractional gold (1/10 oz, ¼ oz and ½ oz Gold American Eagles) remain unaffected by the shortage. APMEX customers are encouraged to take advantage of the low spot prices by purchasing the following items currently in stock and ready for im
- 2008 1 oz Gold Maple Leafs – very limited supply
- 2008 1 oz Gold American Eagles – very limited supply
- 1 oz Credit Suisse Bars – very limited supply
- 2008 Silver Maple Leafs – priced the same as the 2008 Silver American Eagles
- 90% Bag Silver Coins – roughly 712 oz of pure silver
First , I will try and explain the silver physical dealers and how they make money.
A dealer in silver generally buys his silver from either:
1. an investor
2. the mint
When an investor saw his silver rising in price and he needed money, he would take his silver eagles and sell them to the dealer. The price paid by the dealer was generally spot minus 1 or 2%. The dealer would then sell these eagles at spot plus 10%.
At the end of the day, the dealer would purchase a nearby futures contract to cover all the sales of silver he did for the day. When an investor came to sell his silver, the dealer would sell a like amount of comex silver futures and thus guarantee a profit on the spread.
The dealer would on a weekly basis purchase silver eagles from the mint. The mint would charge spot price plus 1.25 per oz. When this inventory arrived, the dealer would sell at spot plus 1.50 per oz and again the dealer would purchase on the futures market to cover all sales of physical he did for the day.
This worked perfectly for our dealers as the mint was supplying metals on a continually basis and investors were always supplying silver cashing in on profits.
The dealer has no intention of taking delivery on the futures market. He would always book profits on the spread.
Now something strange is going on. The mint is delaying shipments of silver and investors are now longer wishing to sell. However the demand from investors to buy is huge.
As we speak, the dealers have no inventories of silver but many contracts of silver on the comex .
This will explain, the huge buildup in the comex open interest. The open interest on silver comex rose to 140,000 basis Thursday. The announcement from the Mint will certainly intensify the situation in silver.
And now for gold:
The complete suspension by the mint is perhaps the first such event in its entire history. We know that in its charter, it must continually operate and coin silver and gold from
What is going on?
First of all, the
1. minting coins (the
2. support on the comex gold
3. exports i.e. cash the gold and reduce deficits
4. sell to jewellers .
Each month the
So, we do not know if the export of gold is
The comex has delivery months on a bi-monthly schedule: Feb. April June Aug Oct and December.
The amounts that stand for delivery have declined in the past year. They were averaging 2.5 million oz per delivery month. This past month it was down to 1.0 million oz or a little over 30 tonnes of gold.
It looks to me that the suspension of mint gold is due to low supplies from
And now for the financial scene:
The banks are in desperate shape. We can tell by viewing 3 figures:
1. the high libor rate in all respective currencies…libor pound, libor, euro and libor
2. the continual march by all major banks to the Fed begging bowl.
3. the huge negative non borrowings by the banks at the Fed. The latest number is negative 120 billion dollars.
The banks are stuck with huge real estate losses that are declining in value on a daily basis. There are 4 sets of mortgages and I will define them and the amts outstanding:
1, the first set of mortgages which started the whole mess was the subprime. This is the smallest of the mortgages and the amount underwritten and collaterized was something around 750 billion dollars. Around 500 billion have been written off already. It looks like about 50 billion remain to be written off.
2. the next big mortgage group is the AltA’s or what is sometimes referred to a liars loans. These typically are jumbo loans A (greater than 425,000) and not suitable for Fannie and Freddie. The mortgagees are generally of a better class but do have documentation on their wealth. However loans were granted to these people. The total Alt A’s are 1.2 trillion dollars.
3, the third group is the prime mortgage group and it numbers around 2.5 trillion dollars. In its subset, is a type of mortgage written called an ARMs or an adjustable rate mortgage. Generally, 3 years ago, teaser rates were set up with a low introductory rate to get you in the door. At the end of the 3rd anniversary year, the payments generally double.
If the amortized rate is higher than when you started, then the amts triple.
The total amts of ARMs resets are 1.5 trillion dollars.
4. Home equity loans. In
If there is a foreclosure, the home equity loan generally gets zero.
If one takes 50% of the Alt a’s, and 50% of the ARM resets you will have 600 billion plus 750 billion or l.35 trillion dollars of losses for the banks.
Then if you add 50% of the home equity losses to these other losses you can see that the losses will be a staggering 2 trillion dollars.
From this figure you can now start to add the mess from the auction rate fraud in which the banks will have to pony up to 400-500 billion dollars.
The total auction rate mortgage market was 350 billion dollars but there are going to be huge penalties because of missed opportunities. Already 3 banks have concluded deals with attorney generals around the
We are not finished yet: start taking losses from student loans, commercial real estate mortgage paper and by the time the mess clears, the losses will be north of 3-3.5 trillion dollars.
And we had not touched any derivative losses yet. Wachovia is 4.1 trillion dollars of derivatives. The total derivative market is 1.14 Quadrillion dollars.
JPMorgan, the leader in derivatives has 91 trillion dollars in interest rate securities CDO swaps etc.
The banks have a total equity of around 600 billion dollars, down from 900 billion dollars. In a nutshell, the entire banking sector is toast.
And we are witnessing the damage to the economy. The banks are going to the Fed begging bowl on a constant basis because they are getting foreclosures on a daily basis. These mortgages stop paying as they default but costs at the bank are still ongoing. They need to go the Fed and get cash to:
1. pay for depositors who wish their money
2. trade in the open market to repair their balance sheet.
The banks cannot lend because they are broke. Their only chance of survival is cannibalize the market so they can survive.
It looks like the banks are hoarding cash and the Fed is now the clearing mechanism for the banks. It is taking weeks to clear cheques.
The foreclosures are having a devastating effect on Federal income taxes, state sales taxes and municipal revenues .e.g
You will note that no sovereign wealth funds are coming forth and rescuing our banks any more as they know the situation is hopeless. The
The Euro is falling because of fears that their economies are in a tailspin. The pundits are right on the Euro. However they are wrong on the
In essence, all currencies will go to their intrinsic value and value is zero.
See you on Monday,