Saturday, August 16, 2008

august 16.08 commentary.


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.  China and commercial entities picked up these contracts.  They were very busy in the London cash market  picking up valuable silver and gold and adding these to their official reserves.


The big announcement of the day without a shadow of a doubt came from the USA mint:


News Alert: US Mint Suspends Sales Of Gold American Eagles

8/14/2008 04:02:00 PM, Posted by APMEX, No Comment

First - The Bad News.

We just received word, the US Mint has suspended sales of the 1 oz Gold American Eagles until further notice and are not accepting new orders from precious metals dealers. This is in addition to the shortage of 1 oz Silver American Eagles.

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 immediate shipment to our customers. If you have recently placed and order with us, you can be confident your items have been reserved for you, set aside and are awaiting your shipment date.

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 immediate shipment.

Gold Investors:

Silver Investors:



The USA mint has now suspended all gold eagles because of a shortage of metal.  They were rationing silver eagles and now they announced a waiting period of 8-10 weeks for shipping.


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 usa sources.  The mint has been in operation from 1797 onward.

What is going on?


First of all, the usa produces 240 tonnes of gold per year from Nevada mines and Montana mines and silver from Idaho.  The 20 tonnes per month works out to 1 billion dollars per month.  This gold was used in the following order of preference:

1.     minting coins (the usa Mint)

2.     support on the comex gold

3.     exports i.e. cash the gold and reduce deficits

4.     sell to jewellers .

Each month the USA announces their trade deficit and generally the trade deficit is reduced by gold exports.  They usually export 3-4 billion dollars worth of gold which is much higher than their production.  The usa also for some arcane reasoning includes foreign gold in their export figures.

So, we do not know if the export of gold is usa gold or foreigners wishing to get their gold off of usa soil. I would put my money on usa gold leaving usa shores to London and out through the leasing game.

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 Fort Knox.  The continual supply of physical gold to keep fiat currency up is having its toll.  It is quite possible that Bush is rationing his last available gold until the end of his term.

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 usa.

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 Canada we refer to them as second mortgages as they stand behind the first mortgage.  In total there are 1.2 trillion dollars written here with Wells Fargo the leader with 84 billion on its balance sheet.  Washington Mutual has 46 billion in this category. 
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 usa .e. g.  Citibank, Wachovia, and UBS.  Expect all of them to bite the bullet on this one.

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 New York City.  These entities are laying off workers and since the two income family is necessary to support a home, they default on the home and the whole process starts again.  It is a vicious circle.

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 usa are now are in their own.

Even in Europe, things are just as bad.  Spain needs 30% of the entire ECB loans to stay afloat.  Spain has obliterated all of its gold and it is still devoid of reserves.  Ireland, Greece,  Turkey,  Portugal are all in the same boat.   Even the mighty Germany is having a downturn.

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 usa.

The usa is in worse shape than Euroland.

In essence, all currencies will go to their intrinsic value and value is zero.

See you on Monday,






Wednesday, August 13, 2008

august 13.08 commentary...important.

james joyce table.


Good evening Ladies and Gentlemen:


Quite a day today.


Gold closed up by 15.80 to 825.80 and silver rose by 37 cents to 14.81.  In the access market right now, gold is trading at 828.00 and silver is trading at 14.91.


The open interest on both metals continue to confound us.  The OI in gold dropped by 10,000 contracts to 365000 as all the specs have been obliterated.  The strange phenomenon is over at the silver OI.

It rose by another 2000 to 140000 totally opposite to its wealthier brother gold.


What does this mean?  I will try and give you my two cents as to what is happening in the silver arena.


July 16.08 was a key event day as Mr Cox, the SEC chairman, announced a banning of naked shorting on just the banking shares.  The SKF banking index was trading at 215.00 and as soon as the announcement came, the bank shares flew as the shorts were forced to cover. The SKF fell to 130 in one day.  The naked shorts,  i.e. the shorting of all shares without borrowing certificates were still allowed to short mining and all other securities.


The OI for silver at that date was around 126000.  The OI started to move up slowly from that point never  contracting for a minute.


Despite the huge sell off in the gold and gold shares, the silver OI continued to rise in total defiance of the situation.


In the COT report on Friday, commercials were moving into the silver arena and specs somehow went to the short side and they did OK until Monday.  In all probability they continued to supply the paper (short the market)


It is my guess that industrial users of silver seeing such a low price of silver could not pass up the opportunity of picking up cheap metal.  Why the comex and not London?  Because London is now void of the metal.  We are hearing that many users are going straight to the mining companies.


China is the world’s largest refiner of silver.  They refine 80% of the world’s silver to get .999 silver.  The process is very toxic and this is why very few countries wish to refine silver.

China was also a large hoarder of silver.  When Mao Tse Tung captured mainlaind China in 1949 , he obtained the silver but not the gold.  The gold left ChungChing, as Chang Kai Shek flew it  over to Taiwan.  This is how Taiwan got its 69 tonnes of gold.  Mainland China was thought to have about 300 million oz of silver and it is believed that they were the suppliers of the metal  throughout the period 2000-2007. 


China may now wish to get its silver back  ie. The physical stuff and default on the comex on its paper obligations.  There are two major paper short positions in silver:


  1. HSBC 
  2. Scotia Mocatta.


The former is believed to have a short position of 700 million oz and the latter 300 million oz.

HSBC  (Hong Kong Shanghai Bank)  has strong ties to mainland China and its motherland Hong Kong.


China may wish to get its silver back that it has leased to the bullion banks.  Remember that China went along with this scheme to acquire the gold metal.  China’s gold reserves have been announced and it is rising above the 1200 tonnes level. A few years ago it has less than 100 tonnes of gold.


It is truly amazing that China is becoming more capitalistic than we are.


There are huge positions on silver put on for the Sept and December comex months.  We are also seeing massive gold calls in December.


Nov 4.08 is the election.  December is the last delivery month before the new  president takes over. Please remember this:  December is the only month of the year that silver and gold are stood for delivery.


My guess?  Something is brewing here.


On the financial scene, as promised to you we witnessed a lot of terror on the banking sector as the shorts piled on and totally annihilated this sector today.  Fannie Mae fell to an all time low of 7.36.

Wachovia dropped below 15.00 and Washington Mutual fell very close to the 4.00 level.


This one caught my eye:


to all; the budget deficit for July was over $100 Billion. The government says that $15 Billion in outlays by FDIC contributed to the deficit explosion. I have just one question. When Indy Mac failed last month we were told it would cost 4-8 billion Dollars. Assuming it was the higher number of $8 Billion, then where did the other $7 Billion come from? Yes, there were 3 other failures in July but they were relatively small. So now we find out through backdoor math that the FDIC spent upwards of 25% of their reserves in one month? This during a month that Paulson, Bernanke, and Pres. Bush ran a dog and pony show assuring us that the banks were strong and no one in 75 years has lost a penny in an FDIC insured account.

We saw bank lines beginning to form last month. Obviously the administration had to make encouraging statements to quell fear. But with numbers like we have seen out of Fannie, Freddie, Washington Mutual, amongst others, and now UBS and FDIC I just don't see how any amount of moral suasion or market manipulation will do anything other than buy a short respite before reality sets in. All of these smoke and mirrors, and obfuscations at best, lies and fraud at worst, will only serve to make the final banking panic that much severe. Regards, Bill H.


Let me explain:  there have been 8 bank failures on which 7 were minor and the 8th , Indy Mac Bank resulted in the FDIC  supposedly laying out  the maximum of 8 billion.  Somehow in the July deficit figures, the FDIC  reported on a loss of 15 billlion dollars.  Where did the other 7 billion go?


Judging from the action of Fannie and Freddie, they are going to need dollars in  a hurry.



There is a huge paper written by Ambrose Pritchard Evans of the UK Telegraph.  I have highlighted the article for you to read.

It basically states that the Euro is heading for the same pasture as the dollar.  It is a must read:



Ambrose Evans-Pritchard: Implosion of Europe will make $800 gold a bargain

Stage 2 of Gold Bull Market Is Just Beginning

By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, August 12, 2008

A war breaks out in the Caucasus, pitting Russia against a close ally of the United States. Inflation reaches a new peak in the euro-zone. The CPI reaches the highest in Britain since Bank of England independence. Rampant inflation sweeps the developing world.

There are two major events ongoing in the market place.  We are seeing massive naked shorting of all kinds of stocks.  The money raised is being injected into the markets to buoy the indicies.

The market tried to rally today but failed as too many wished to find the exits.  The cartel lost a valuable ally to them, the fact that bank shares could not be naked shorted


It is now becoming obvious that the naked shorts  are causing havoc to the back room of brokerage firms in that it would be very difficult to differentiate real securities from counterfeit.

In naked shorting, the seller who does not own the security sells a stock to the buyer.  When it comes time to deliver the security he states that he does not have it.  It is then labelled as a FTD or a “
Failure to Deliver:.   The regulations require a fine but the authorities turn a blind eye to this.  Obviously the bankers collude with other houses to continue with this charade.


This criminal activity will stop in short order.


The second big fraud is the supplying by the brokerage community of gold and silver certificates without any physical backing.

If I am right about the taking of deliveries of silver and for that matter gold on December l.08, maybe we will see fireworks prior to the induction of the new president.




Speak to you late Thursday.





Tuesday, August 12, 2008

commentary August 12.08

 James Joyce table.


Good evening Ladies and Gentlemen:


Gold closed down by 11,80 to 809.70.  Silver fell by 3 cents to 14.44.


Open interest on gold comex fell by 10,000 contracts as many strong hands bit the dust.  In silver the OI rose despite the huge drop.  Obviously there is more buying interest here as the price declines.

As the price declined the users of silver bought the lower silver contracts. However the specs were the providers of the contracts.  This is the reason for silver OI rising in a falling price environment.


The two big silver mines  Coeur D”Aleine and Hecla both showed big losses as they cannot make money at 17.00 silver.


Last night we witnessed gold get hammered in Toyko down to 803.00.  We knew we were in for a battle.  When the comex gold opened gold has already climbed back to par but it was beaten back by the cartel boys.  Gold was all over the place today.  At the second London fixing, they hammered it down where it closed down by 11.80.  However in the access market it rose. 


Gold shares sensing the awkwardness of the situation, rose as the xau contract closed at 40.64.


With gold trading below 10% of its 200 day moving average is not very appealing to traders.  There is going to be a lot of fence mending here.


On the financial scene, it could not get worse.


In perhaps one of the most stunning announcements yet, it was reported by Reuters that 1 out of 3 homes purchased in the last 5 years is under water in their mortgage.

The author however fails to account to second mortgages or home improvement loans.  If you add these to the mix, one get  1 out of 2 homes under water.  The banks are in a mess north of 2-2.5 trillion dollars.  Then you can add derivatives to that toxic soup and you can know visualize the mess that we will never get out of.


Today, the first big news came from JPMorgan;



U.S. Stocks Fall on Banking Concern; JPMorgan, Goldman Retreat

Aug. 12 (Bloomberg) -- U.S. stocks fell for the first time in three days after JPMorgan Chase & Co. said it may post more credit losses, pushing the worldwide costs for the collapse of the subprime mortgage market to more than $500 billion.

JPMorgan, the second-largest U.S. bank by market value, dropped the most since 2002 after saying trading conditions have ``deteriorated.' Goldman Sachs Group Inc. slipped to a one-month low as Deutsche Bank AG analyst Mike Mayo and Oppenheimer & Co.'s Meredith Whitney cut profit estimates for the biggest securities firm. Wachovia Corp. and Morgan Stanley fell more than 7 percent each as financial shares erased yesterday's advance….  end



JPmorgan  basically said that it is going to write off 1.5 billion dollars of bad mortgages which are under foreclosure.  They said that July was the worst month  re the mortgage fiasco.  Meredith Whtiney cut estimates for Wachovia and its stock broke 16.00 for the first time in quite a while.

The entire banking sector collapsed today with the SKF index closing up  by 10 points to 121.00.   Goldman Sachs stock fell by 10 dollars, Morgan Stanley fell by 7%.  Fannie and Freddie fell to all time lows.  Freddie is 5.23 and Fannie is 8.35.


I find it strange that with the announcement by Cox that he is rescinding the naked shorts on banking shares, the entire banking entourage falls in stock price.

The official announcement came at 1 o’clock.  The banks contracted badly right after his announcement.  Mr Cox  states that he is very mindful of the naked shorting and he is going to make an official response in Sept with implementation in 2009.


With the huge naked shorting of gold shares, the unwinding of these shares would send the index into the stratosphere.

This is why the entire brokerage community are wilfully blind to the antics of the cartel members.  They know that we are witnessing a rigged game and they turned a blind eye.


Mr Cox knows of naked shorts and admits such in his address.  He is going to have a real problem sorting out the mess with the Bear Stearns naked shorts and how it brought these guys down.


Mr Lukken the chief of the CFTC is going to have a problem when the last oz of gold and silver are handed in and the bankers no longer have any metal backing their huge shorts.

Gee whiz:  I thought that the mortgage problem is behind us:

Fed auctions another $25 billion in loans in an effort to combat a serious credit squeeze

WASHINGTON (AP) -- The Federal Reserve has auctioned another $25 billion in loans to the nation's banks and given them more time to pay the money back in an effort to combat a serious credit squeeze. The Fed announced Tuesday that the money would be loaned at a rate of 2.754 percent. In the latest auction, the Fed offered the loans for an extended period of 84 days, rather than the 28-day period for the previous loans.


Now, they are loaning money for 84 days not just 28 days.

Today, the usa reported its budgetary deficit for July:  (it was a doozy)

U.S. posts $102.77 bln July budget deficit

WASHINGTON, Aug 12 (Reuters) - The U.S. government turned in a $102.77 billion budget deficit for July as revenues fell and spending growth continued amid economic stimulus payments and federal deposit insurance payouts related to bank failures.

The U.S. Treasury Department said on Tuesday the July deficit was nearly three times the $36.44 billion deficit a year earlier. The gap exceeded the expectations of analysts polled by Reuters, who forecast an $88.5 billion deficit for July.

July's deficit was increased by about $14 billion in tax rebates and other economic stimulus payments, as well as about $15 billion in disbursements from the Federal Deposit Insurance Corp. to cover insured deposit at failed banks. A year-ago calendar shift in some federal benefits payments also reduced the July 2007 deficit by $19 billion.

The deficit for the first 10 months of the 2008 fiscal year, which ends Sept. 30, swelled to $371.44 billion from a gap of $157.42 billion in the same period of fiscal 2007.

The fiscal year-to-date deficit was slightly behind the
record pace of 2004, when the Treasury reported a $396 billion gap for the first 10 months of a fiscal year that resulted in a record $413 billion deficit.

The Bush administration is projecting that the fiscal 2008 deficit will reach $389 billion before hitting a record of $482 billion in fiscal 2009.

July and August are typically deficit months, but the government often collects late tax revenues in September to reach a surplus for the final month of the fiscal year.

The economic slowdown has caused tax receipts from both corporations and individuals to slow this year, while spending growth continues unabated…


14:42 Dallas Fed President Fisher says U.S. economy to "broach zero gr

Wachovia reported a wider loss than expected:

Wachovia boosts loss to $9.11 bln, cuts more jobs

NEW YORK, Aug 11 (Reuters) - Wachovia Corp increased its previously reported second-quarter loss to $9.11 billion to cover costs to settle a probe of auction-rate securities sales, and said it will cut more jobs as the housing market deteriorates.

The fourth-largest U.S. bank is now reporting a loss of $4.31 per share, up from the $8.86 billion, or $4.20 a share, it reported on July 22, according to its quarterly report filed on Monday with the U.S. Securities and Exchange Commission.

Wachovia also now plans to cut 6,950 jobs, 600 more than it had disclosed, with the additional cuts coming from mortgage operations, spokeswoman Christy Phillips-Brown said. The cuts affect about 5.8 percent of Wachovia's 120,000-person workforce. Wachovia also is also eliminating 4,400 open positions….


I find it intriguing that the lease rates on gold and silver fell to negative 3% on Monday.  The cartel members had to entice leasors by giving them an extra 3% to lease the metal.   As far as I am concerned this is prima facia evidence of collusion, manipulation and outright fraud by central bankers and bankers.

Have to go now,

See you tomorrow.

Expect extreme volatility in the gold sector and expect bank shares to get hammered as they are allowed to naked short.

The bankers are going to scream to Mr Cox for mercy.








Monday, August 11, 2008

august 11.08 commentary.

Today was a complete disaster.  Gold closed down by 34.00 to 822.50 and silver fell by 90 cents to 14.44.  Surprisingly the open interest on both silver and gold rose despite the massacre on Friday.

Golds OI rose by 7000 to 383000 and silver rose again by 2000 to 137000.


Perhaps, the most disturbing details came from news of the attack by Russia on Georgia.  The west is completing a pipeline which will send oil supplies to Europe.  This is the last thing that Europe  needs.  It does not want to be a pawn for Russia.


Gold should have been up by 100 dollars per oz but instead got annihilated along side of silver and all of the other commodities.  The excuse was a fall in oil but it fell only marginally.

The entire CRB fell by 12.00 which is huge. 


The last time commodities prices were low was in  2000-2001.  Gold was 250.00 per oz.  Oil was 10.00  The usa dollar index was 130.00 and  the crb index was at its nadir .

The key difference today is  short term interest rates are very low (2%) although long term rates are rising because of fear of default. Back in 2000-2001 interest rates were 6%.


Either short term rates must fall to allow prices to rise or we will enter a full scale depression worse than that of 1929.


The banking sector is in total disarray as attorney generals across the land are demanding payment against the fraudsters due to the fiasco related to the auction rate securities.  In the commentary, you can see that the ALT a ‘s  and the ARM resets will be in full bloom next month sending the banks into default.


No sovereign wealth fund is rushing in to rescue these guys.  The game is over for our banksters.


The problem is that they are taking everybody with them.


Speak to you tomorrow


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