Saturday, November 1, 2008

November 1.commentary.

www.lemetropolecafe.com

 

Good morning Ladies and Gentlemen:

 

Yesterday, we learned that the 1 month treasury bill rate sank to 1/10%.  That is correct 1/10% annualized for a year.

The 10 year bond price sank with the yield rising to 3.96%.  The long bond plummeted in value to 112.90 setting the stage for a stock market debacle after the election.

 

The TED spread which measures bankers risk after falling these past 2 weeks, reverted upward.  The Libor 3 month rate basis usa came in at 3.19% or a full 2.19% above normal rates.  Banks simply do not want to loan to each other because of the huge credit default swaps losses on their books and all that mortgage junk that they just cannot get rid of.  The debt spiral is still upon us and this can bring us into a depression.

 

Gold closed down by 17.00 to 717.70 and silver fell by 3 cents.  The open interest on gold rose by 3000 contracts to 306000 but the silver Oi fell another 400 contracts to rest at 94400.  Silver continues to trade at the comex in backwardation signalling trouble for our CFTC  regulators.  

 

We expect, that in November over 7.0 million oz of silver options will stand for delivery and then in December probably 60-70 million oz will stand which will break the comex.

 

However, on Nov 15.08  the Group of 20 nations meet to discuss currency alignment.  If they adopt a new currency backed by silver, gold and oil, then that might avert a comex default.   However the usa will not be part of this new reserve currency.

The Group of 20 wish to have a new Bretton Woods agreement with a metal backing. 

 

Commodity countries will do quite well in this arrangement.  The usa will not.

 

The IMF has now loaned out greater than 70 billion dollars.  It’s gold backing of 3200 tonnes is worth about 70 billion dollars so all of the backing is loaned out.  The world is awash in paper.

 

In economic news, the following items are important:

 

NYC economic downturn continued in October-NY-NAPM

NEW YORK, Oct 31 (Reuters) - Business activity in New York City shrank in October, contracting for the ninth time in 10 months, according to an industry report released on Friday.

The National Association of Purchasing Management-New York's seasonally adjusted index of current business conditions fell to 35.6 in October, the lowest level since July 2007, from 39.1 in September. The 50 level separates growth from contraction.

Its index of local business activity fell to the lowest level of the year, slipping to 396.8 in October from 404.0 in September.

Future pessimism diminished, with the six-month outlook index bouncing back to 51.6 in October from 39.3 in September.

Still, "the choppiness in the outlook index in recent months makes purchasing managers appear uncertain about the near-term direction of the regional economy," said Jonathan Basile, the Credit Suisse economist who compiles the report.

Cost pressures fell for the first time in a year and purchasing volume plunged to a five-year low, the report said.

The prices paid index showed some easing cost pressures, falling to 47.8 in October from 68.1 in September…

-END-  end

 

NY economic activity sank again badly in Oct.

 

Then we got two reports:  the Chicago Purchasing Managers report and the University of Michigan consumer index:

09:45 Oct Chicago Purchasing Manager's Index reported 37.8 vs. consensus 48.0
Sep reading was 56.7.
* * * * *

09:55 Oct Univ. of Michigan reported 57.6 vs. cosnensus 57.5
Preliminary Oct figure was 57.5
* * * * *

US consumers' mood posts record drop in Oct-survey

NEW YORK, Oct 31 (Reuters) - U.S. consumer confidence suffered its steepest monthly drop on record in October, a survey showed on Friday, as the worst financial crisis in generations continued to take its toll.

The Reuters/University of Michigan Surveys of Consumers said its final reading of its index of confidence plunged to 57.6 in October from 70.3 in September.

That was just slightly below economists' expectations for a reading of 57.8, according to the median of their forecasts in a Reuters poll. It was up marginally from 57.5 recorded in the Surveys' of Consumers preliminary report released on Oct. 17.

"Consumers reported the most dismal assessments of their current financial situation ever recorded," the report said.

The index was its lowest since a reading of 56.4 in June of this year.

The report said there have previously only been four surveys that posted double-digit declines, "and all resulted from severe economic dislocations, with the losses accelerated by fear and panic."

The University of Michigan confidence index dates back to 1952. Its record low was 51.7, which it hit in May 1980….

-END.

Both show dismal confidence in the economy.

 

I would like all of you to read this: click on the blue

Click here: Paulson's Swindle Revealed.

Japan is scared stiff that they are heading into a deep depression.  Japan is contemplating printing yen and via the helicopter give citizens money to spend:

Japan's desperate bid to kick-start economy

Submitted by cpowell on 02:52PM ET Thursday, October 30, 2008. Section: Daily Dispatches

By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, October 30, 3008

Japan is to give emergency cash handouts to every household in the country regardless of whether they are rich or poor as a part of $260 billion (L159 billion) blitz to kick-start the world's second-largest economy and prevent a slide back into deflation.

The raft of measures comes amid reports in the Japanese press that the Bank of Japan is mulling a cut in interest rates from 0.5 percent to 0.25 percent as soon as today, chiefly aimed at curbing any further rise in the yen exchange rate after its spectacular increase since the summer. The futures markets are pricing in a 50 percent chance of a cut.

"A harsh storm seen only once in 100 years is raging," said Japan's premier Taro Aso as he unveiled the spending plans in Tokyo.

The package includes payments of $600 for a typical family of four, as well as tax relief on mortgages, in the raft of measures worth $50 billion, or roughly 1.2 percent of Japan's GDP. It is the second fiscal package in two months…

http://www.telegraph.co.uk/news/worldnews/asia/japan/32
86794/Japans-desperate-260bn-bid-to-kick-start-economy.html
end.

Speak to you on Monday.

Harvey.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nov.1 commentary.

www.lemetropolecafe.com

 

Good morning Ladies and Gentlemen:

 

Friday morning, the 1 month treasury rate was .10% .  Yes, that is correct  1/10% annualized for 1 year.  That is very eerie indeed.

 

The 10 year note  has climbed to 3.96%.  The 30 year bond price plummeted yesterday and finished at 112.90.

 

The Ted spread which measures bankers risk has now reversed and climbed upwards.  The Libor rate for 3 months is 3.19% basis usa, a full 2.19% above normal levels.  Banks are refusing to lend.  The banks do not trust one another.  Each know that the other has credit default swaps that can sink the entire globe.

 

Gold closed down by 19.90 to 717.90 and silver fell only by 3 cents to 9.75.  Silver continues to be in backwardation which will cause nightmares to CFTC officials.  Demand for physical metals are high but central authorities around the globe refuse to left citizens buy them.

 

The gold comex OI climbed by 3000 contracts to 306000 still very low.  The silver OI dropped another 394 contracts to 94400.

 

It is obvious to all, that cartel members cannot shake any more leaves from the silver tree.  Many silver comex holders will take delivery in December.  Many option holders in the November silver comex will also stand and take delivery.  Judging from the Oct contract expect an additional 7.0  million oz to leave comex vaults.

 

In December, I believe that 60-70 million oz of silver will stand which will break the comex.

 

On November 15 the Group of 20 nations meet to discuss currency alignment. There is a strong chance of a new Bretton Woods agreement with gold, oil, silver as principal backers to a new reserve currency.

 

Implementation of this prior to December 1 may prevent a comex default.  However we will have a new reserve currency and all currencies throughout the world will trade against it.  If this happens, all commodity countries will do quite well.  The usa will not be a member of this reserve currency ending its highly vaulted status.

 

In economic news, the following items are very newsworthy:

 

NYC economic downturn continued in October-NY-NAPM

NEW YORK, Oct 31 (Reuters) - Business activity in New York City shrank in October, contracting for the ninth time in 10 months, according to an industry report released on Friday.

The National Association of Purchasing Management-New York's seasonally adjusted index of current business conditions fell to 35.6 in October, the lowest level since July 2007, from 39.1 in September. The 50 level separates growth from contraction.

Its index of local business activity fell to the lowest level of the year, slipping to 396.8 in October from 404.0 in September.

Future pessimism diminished, with the six-month outlook index bouncing back to 51.6 in October from 39.3 in September.

Still, "the choppiness in the outlook index in recent months makes purchasing managers appear uncertain about the near-term direction of the regional economy," said Jonathan Basile, the Credit Suisse economist who compiles the report.

Cost pressures fell for the first time in a year and purchasing volume plunged to a five-year low, the report said.

The prices paid index showed some easing cost pressures, falling to 47.8 in October from 68.1 in September… end

 

Then we heard this startling development on the Chicago’s Purchasing Management Report and the University of Michigan’s report on consumers:

 

09:45 Oct Chicago Purchasing Manager's Index reported 37.8 vs. consensus 48.0
Sep reading was 56.7.
* * * * *

09:55 Oct Univ. of Michigan reported 57.6 vs. consensus 57.5
Preliminary Oct figure was 57.5

 

US consumers' mood posts record drop in Oct-survey

NEW YORK, Oct 31 (Reuters) - U.S. consumer confidence suffered its steepest monthly drop on record in October, a survey showed on Friday, as the worst financial crisis in generations continued to take its toll.

The Reuters/University of Michigan Surveys of Consumers said its final reading of its index of confidence plunged to 57.6 in October from 70.3 in September.

That was just slightly below economists' expectations for a reading of 57.8, according to the median of their forecasts in a Reuters poll. It was up marginally from 57.5 recorded in the Surveys' of Consumers preliminary report released on Oct. 17.

"Consumers reported the most dismal assessments of their current financial situation ever recorded," the report said.

The index was its lowest since a reading of 56.4 in June of this year.

The report said there have previously only been four surveys that posted double-digit declines, "and all resulted from severe economic dislocations, with the losses accelerated by fear and panic."

From the very good newspaper journal came this story on the swindle of the American people re the bailout:

 

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Paulson's Swindle Revealed

By William Greider

October 29, 2008

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The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.

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William Greider: United Steelworkers Union prez Leo Gerard cracks open the sweetheart deal that bailed out nine banks--and likely lined the Treasury Secretary's own pockets--with billions of taxpayer dollars. Does anybody care?

These are dynamite facts that demand immediate action to halt the bailout deal and correct its giveaway terms. Stop payment on the Treasury checks before the bankers can cash them. Open an immediate Congressional investigation into how Paulson and his staff determined such a sweetheart deal for leading players in the financial sector and for their own former employer. Paulson's bailout staff is heavily populated with Goldman Sachs veterans and individuals from other Wall Street firms. Yet we do not know whether these financiers have fully divested their own Wall Street holdings. Were they perhaps enriching themselves as they engineered this generous distribution of public wealth to embattled private banks and their shareholders?

Leo W. Gerard, president of the United Steelworkers, raised these explosive questions in a stinging letter sent to Paulson this week. The union did what any private investor would do. Its finance experts vetted the terms of the bailout investment and calculated the real value of what Treasury bought with the public's money. In the case of Goldman Sachs, the analysis could conveniently rely on a comparable sale twenty days earlier. Billionaire Warren Buffett invested $5 billion in Goldman Sachs and bought the same types of securities--preferred stock and warrants to purchase common stock in the future. Only Buffett's preferred shares pay a 10 percent dividend, while the public gets only 5 percent. Dollar for dollar, Buffett "received at least seven and perhaps up to 14 times more warrants than Treasury did and his warrants have more favorable terms," Gerard pointed out.

"I am sure that someone at Treasury saw the terms of Buffett's investment," the union president wrote. "In fact, my suspicion is that you studied it pretty closely and knew exactly what you were doing. The 50-50 deal--50 percent invested and 50 percent as a gift--is quite consistent with the Republican version of spread-the-wealth-around philosophy."

The Steelworkers' close analysis was done by Ron W. Bloom, director of the union's corporate research and a Wall Street veteran himself who worked at Larzard Freres, the investment house. Bloom applied standard valuation techniques to establish the market price Buffett paid per share compared to Treasury's price. "The analysis is based on the assumption that Warren Buffett is an intelligent third party investor who paid no more for his investment than he had to," Bloom's report explained. "It also assumes that Gold Sachs' job is to protect its existing shareholders so that it extracted from Mr. Buffett the most that it could.... Further, it is assumed that Henry Paulson is likewise an intelligent man and that if he paid any more than Mr. Buffett--if he paid $1 for something for which Mr. Buffett would have paid 50 cents--that the difference is a gift from the taxpayers of the United States to the shareholders of Goldman Sachs."

The implications are staggering. Leo Gerard told Paulson: "If the result of our analysis is applied to the deals that you made at the other eight institutions--which on average most would view as being less well positioned than Goldman and therefore requiring an even greater rate of return--you paid a$125 billion for securities for which a disinterested party would have paid $62.5 billion. That means you gifted the other $62.5 billion to the shareholders of these nine institutions."

If the same rule of thumb is applied to Paulson's grand $700 billion bailout fund, Gerard said this will constitute a gift of $350 billion from the American taxpayers "to reward the institutions that have driven our nation and it now appears the whole world into its most serious economic crisis in 75 years."

Is anyone angry? Will anyone look into these very serious accusations? Congress is off campaigning. The financiers at Treasury probably assume any public outrage will be lost in the election returns. I hope they are mistaken.

About William Greider

National affairs correspondent William Greider has been a political journalist for more than thirty-five years. A former Rolling Stone and Washington Post editor, he is the author of the national bestsellers One World, Ready or Not, Se

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thursday, October 30, 2008

Oct 30.08 commentary.

http://www.nymex.com/media/delivery.pdf.

 

www.lemetropolecafe.com

 

Dear Ladies and Gentlemen:

 

If you click onto the first blue  www.nymex.com/media/delivery.pdf 

You will note that over 1293 contracts of silver have been delivered in this off month.  That represents over 6.4 million oz of silver.  We still have two days more of contracts to be fulfilled.

 

Today, silver went into backwardation for the first time in recorded history for all months.  The CFTC  will be alerted to this and this shows genuine shortage due to demand and lack of supply.  What is more fascinating is that the lease rate is 2% and libor is 3%.  Probably the lease rate is not the correct recorded rate.  It is probably 4% in order for silver to go into backwardation.

 

Today, gold closed down by 16.20 to 736.70. Silver never moved, it fell by only 5 cents as the cartel members tried to shake the tree one more time before the election. 

 

The open interest on gold comex fell big time to 303000 a new all time low.  Silver’ s OI fell  by  a 1000 contracts to 94700.

Silver is also at an all time low on OI.  Again this is very dangerous for our cartel members.  There is no use in raiding the comex anymore as there is no one to fleece. Everyone left is taking delivery.  The comex will default in December.

 

The stock market rose by 190 points today as the greaseballs  poured huge liquidity into the market with 15 minutes to go.

The market was only up by 50 points when for no apparent reason, the stock market surged.

However the former market leaders AIG and Goldman Sachs did not do too good today:

Of special note was the horrendous performance of Comrade Paulson's former firm, Goldman Sachs. Its share price FELL $6.55 to $91.11, even as the DOW surged. I agree with Andy. It feels like a bomb is going to go off, maybe right after the election.

When you combine the share action of GS, along with the shenanigans going on at AIG (see below), it suggests to me that a derivatives neutron bomb is going to go off in the near future, one which will have a major negative impact on the financial markets and our economy. This could be THE one which is TOO BIG  end

Here is the AIG story:

 

A Question for A.I.G.: Where Did the Cash Go?

The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.

http://www.nytimes.com/2008/10/30/business/30aig.html?_r=1
&ref=business&oref=slogin
  end

 

Please click on the blue for the NY times story.   AIG has now gone through 123 billion dollars and they are needing another 20 billion dollars.  Where is this money going?  Why are taxpayers  funding this?

 

And for our CFTC officials:  why did you not act sooner when we highlighted to you AIG’s involvement in the silver scandal in 2003-2005?

 

AIG is now up to 142 billion in moneys received:

 

IG black hole grows...

AIG is now tapping into the Fed commercial paper facility for $20 billion. Add this to the $122 billion in loans advanced to AIG and we're up to $142 billion of what will ultimately be a taxpayer funded attempted bailout of AIG.

http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=AIG%3AUS&sid=agTEE76c5xzg  end.

 

This is really interesting:

21:48 US companies need to inject $100B into their pension funds to cover market losses - FT
The WSJ focused on pension problems in a "Heard on the Street" column. The FT reports that the $100B cash payment, estimated by several industry executives, would be spread over this financial year and next. Citing estimates from Mercer, the paper notes that the 700 largest corporate plans were more than 100% funded at the end of last year, but as of last week, the figure had fallen to around 83%.
Reference Link (subscription required  end

 

100 billion dollars are needed to cover pension shortages?  Companies are in real trouble.

I pointed this out to you on a few occasions.  This is the sewage debacle in Birmingham Alabama.

It has now turned into a criminal case and our fearless hero  J.PMorgan is the target.  They defrauded the  city of Birmingham and probably the city and the state may have to declare bankruptcy.

JPMorgan Swap With Alabama Drawn Into Criminal Probe

Oct. 29 (Bloomberg) -- The U.S. Justice Department is investigating a derivative trade between the state of Alabama and JPMorgan Chase & Co. as part of a nationwide criminal probe….

U.S. prosecutors and the Securities and Exchange Commission have searched for almost two years for evidence of rigged bidding and price fixing by banks in the $2.7 trillion municipal bond market. They have focused on derivatives, such as interest-rate swaps tied to bonds, and contracts to invest bond-sale proceeds.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=arVdj0bEzRfc end

This is bad:  400,000 people in the oldest money market in the usa and they still cannot get their money:

Reserve Fund's Investors Still Await Their Cash
By DIANA B. HENRIQUES
At least 400,000 people, and perhaps as many as a million, can’t access their savings in the Reserve Fund, the nation’s oldest money market fund, with no sure end in sight.

Bill H:  end

 

Bryant writes about silver.  I have pointed out this to you already:

Total COMEX silver deliveries for the month of October are slightly over 6 million ounces. This is somewhat high for a non delivery month. What is unique about the October deliveries though is that about 95% of the supply came from JP Morgan. Ted Butler has described the COMEX silver power structure over the years evolving from the top 8 commercials led by the king rat AIG years ago, to the top 4 being called T Rex with the smaller commercials being the Raptors which had begun to compete against the T Rex. What we now have is JP Morgan standing alone. JP Morgan is now both the king rat and the sole remaining T Rex. He has no subjects to order around, but he is also out of food because he has killed his food supply. It is only a matter of time until he weakens, and the silver market feeds on him. Total COMEX warehouse silver stocks are now down to 130,349,996 ounces, down from about 137 million ounces a month ago. The silver stocks have been above 130 million ounces for about a year, but it looks like that floor is about to be broken as 250,000 to 500,000 ounces per day are being consistently withdrawn. Regards,

-Bryant end

 

Another startling event occurred late in the day.  The long bond tanked and it is now trading at 113.50.

 

Generally, when the long bond comes close to 112.00 the boys engineer a stock market fall and cause the bond prices to rally.  Let’s see what they do.  A bond price fall to 108.00 will break JPMorgan who have made a one way bet on interest rates and that is they believe interest rates will remain low forever.

Even the second largest mining company in the world is having problems.  Anglo reported a loss of 3.00 per share today:

AngloGold posts Q3 loss, hit by credit crisis

http://www.reuters.com/article/unknown_channel/idINLT30925020081030

-END.

 

Speak to you on Saturday

Harvey

 

 

 

 

 

 

 

 

 

 

 

Wednesday, October 29, 2008

Oct 29.08 commentary.

www.lemetropolecafe.com

 

Good evening Ladies and Gentlemen:

 

Gold closed up by 13.10 to 753.10.  Silver rose by a full 1.02 to 9.83.

 

The open interest on the gold comex fell a few thousand contracts and its new OI rest at 313000.  Silver’s Oi rose 2000 contracts to rest at 95000.

 

Over in the comex silver pits another 350,000 oz of silver stood for delivery on the Oct option sector.  The total deliveries now total 6.185 million oz which is 6 x normal deliveries for a non delivery month.  JPMorgan was in on all trades.

 

In economic news, I guess everyone heard that the usa lowered the Fed Funds Rate to 1% due to the deteriorating health of the usa economy.  They also stated that there is room for further cuts.

The dollar tanked on the news.  Commodity prices rose sharply. 

 

The announcement was unanimous for the first time and that sent the Dow initially down from where it was trading.  At 2:15 the Dow was up about 150 points. It initially fell to  minus 160 then rebounded to positive 300.00 with about 10 minutes to go and then the floor caved in.  The Dow finished the day down by 72 points.  It looks to me that Bernanke will now hyper-inflate his way out of his mess!

 

This is deadly:

 

We warned several weeks ago, that despite the US Treasury’s effective, explicit, hinted or winked guarantee on GSE debt, foreigner investors are dumping it and dealers don’t want to warehouse it.

FTN"s Jim Vogel on October 17, 2008: It couldn’t be any clearer. Treasury’s support for Fannie Mae and Freddie Mac is not a guarantee of their debt or mortgage obligations. It says so in black and white.

So, how does Treasury’s involvement work, then? The support mechanism is elaborate, clever, but not fool proof from the perspective of a debt holder. It should work, and Treasury intends it to work. But, how the Treasury’s support will ultimately influence spreads is for market participants to determine. To do that, investors need to understand both pros and cons of the relevant documents...

First, a repetition of what we said on September 7: The government’s support for Fannie Mae and Freddie Mac does not represent the full faith and credit of the United States in any common usage of that term in the capital markets. Nor is it an explicit guarantee. If there were any doubt on the guarantee, it is eliminated by Section 6.6, which reads in its entirety 6.6 Disclaimer of Guarantee. This Agreement and the Commitment are not intended to and shall not be deemed to constitute a guarantee by Purchaser [Treasury] of any other agency or instrumentality of the United States of the payment or performance of any debt security or any other obligation, indebtedness or liability of Seller [the GSE] of any kind or character whatsoever.

Instead, the Treasury has agreed to fund sufficient amounts of a senior preferred stock1 to maintain cover any deficiencies between each company’s assets and its liabilities on a GAAP basis. The agreement is designed to function beyond the December 31, 2009, time window crafted in the Housing and Economic

Recovery Act (passed July 30). The initial and still lingering perception is Treasury support can only last until that date. That perception is wrong…

-END.

In other words, the Government’s support for Fannie and Freddie does not represent the full faith and credit of the usa….nor is it an explicit guarantee. No wonder bond yields are much higher on Fannie and Freddie Bonds compared to usa treasury bonds.

This is the most important statement yet:

The FACT is simple. Agency debt is trading at 100-plus basis point premiums to U.S. Treasuries because the rest of the world is now reducing its appetite for U.S. Government-backed paper and the agency debt spreads reflect THE RISK OF U.S. GOVT DEFAULT. Why? Because the U.S. Govt debt and U.S. dollar currency that it's issued in is BACKED BY NOTHING…..

To reinforce my previous email on agency debt:

http://mrmortgage.ml-implode.com/2008/10/29/treasury-continuing-to
-try-to-talk-down-mortgage-rates/
/

 

I highlighted the passage from Mr. Mortgage:

Treasury Continuing to Try to Talk Down Mortgage Rates

Posted on October 29th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

The housing market is being dealt another blow. Fannie and Freddie mortgage backed debt has been under fire in recent days.  Mortgage rates have risen considerably.

A friend who deals in this space told me yesterday ‘there are very few new buyers’.  As Agency debt is sold, interest rates rise.  Agency spreads have been blown out  despite the Treasury backing the paper in the big Fannie/Freddie bailout and Lockhart repeating the fact they were backed a couple of weeks ago.

Now, Treasury is continuing their futile campaign of talking down mortgage rates with yet another statement from Treasury.  Obviously they are frustrated that large Agency holders keep selling in favor of Treasuries when they both have the same backing, or so we are told.

Perhaps investors just don’t like the word ‘effectively’.  Remember, the operative word with respect to the GSE’s is ‘explicit’.  Maybe they are refusing to use the word because there is no way Treasury can ‘explicitly’ guaranty $5.4 trillion in loan guarantees and debt.  Foreign Central Banks know this.  I wrote about is several times when it was happening a few months ago - see links at bottom of page.

Perhaps investors just rather buy the debt of the nine favorite children banks and brokers that also have the same ‘effective’ backing.  Now that everything is government backed, there is a lot of competition for dollars. Perhaps foreigners are sick and tired of anything US housing and mortgage related especially when they are also de-leveraging and raising capital.

Whatever the case, Agency debt and mortgage backed debt is being shunned.  And if this does not turn around, the housing market will become even less affordable forcing values down that much more setting off even more loan defaults due to the dreaded negative equity effect.  Housing remains unaffordable enough without 8.5% rates coming into the picture. -Best, Mr Mortgage

“Treasury: U.S. ‘Effectively Guarantees’ GSEs

Source: National Mortgage News

In effort to reduce mortgage rates, the Treasury Department is stressing that the U.S. government “effectively guarantees” all Fannie Mae and Freddie Mac debt and mortgage-backed securities. “The U.S government stands behind these enterprises, their debt and the mortgage-backed securities,” Treasury acting under secretary Anthony Ryan told the Securities Industry and Financial Markets Association. “Their mission is critical to the housing markets in the United States and no one will deny the importance of these institutions in assisting our housing market in this downturn,” Mr. Ryan said. The two government-sponsored enterprises were placed into government-controlled conservatorship on Sept. 7. Fannie Mae and Freddie Mac each entered into a preferred stock purchase agreement with Treasury “that effectively guarantees all debt issued by the GSEs, both existing and to be issued,” the Treasury official said”.

My friend Bill King touched upon this major problem in last night’s missive:

The lease rates on silver continue to climb.  They are roughly a shade below 2%.  The gold lease rates continue to be high at the 2.5% level.

 

Tomorrow will be interesting to see what happens to libor with the drop in the overnight Fed funds rate.  If Libor usa drops below 2.5 then gold goes into backwardation and that would signal hyperinflation as this would be the first time in recorded history that the ultimate money is dearer in the current month over future months.  This would be a very scary event.

 

Speak to you on Thursday,

 

Harvey.

 

 

 

 

 

 

 

 

 

 

 

 

 

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