Saturday, November 22, 2008

Nov 22.08 commentary.


Good morning Ladies and gentlemen


Yesterday was quite a day.  Gold closed during regular hours at 791 up 41 dollars, and it continued to rise in the thinly traded access market to finish the day at 801.00.  Silver rose by 49 cents to 9.49.


The open interest on gold comex fell big time to 285000 despite gold`s rise on Thursday.  Silver``s Oi remain flat at 92000.

We also saw a very small drop in the silver December to March contracts.  It is still looking good for a default there.

The news of a fall in comex OI and a small roll from December to Feb has caused gold to go into semi –backwardation.


Another way of stating the same thing is that the lease rate on silver is higher than the libor rate that one could get from selling the metal.  Yesterday the lease rates for gold were recorded at 2.13% and the libor was at 2.15%.  Probably lease rates are much higher as you cannot really trust the data.  However, the values on the future trading on gold did confirm that prices on gold in the future were similar to the spot price. 


Generally this indicates a scarcity of the metal.  However when you speak of gold which is the ultimate money, it is impossible to have gold or real money, higher now than in the future.  Here is the relative important passage:


From Lance Lewis this am re gold backwardization:

8:50 EST: Gold Officially Goes Into Backwardation

This morning, gold officially went into backwardation for the first time since the announcement of the Washington Agreement in 1999, which sent gold shorts scrambling to find physical metal after the world's major central banks agreed to limit sales of gold going forward and ended the one-way trade to the downside in gold that had been in place in the late 1990s.

We know gold is now in backwardation because the gold forward offerred rate (GOFO) has now gone negative. The 3M GOFO has fallen 12 bps to -0.07%, and the 1M GOFO has fallen 20 bps to -0.1167%.

Unlike other commodities, gold very rarely goes into backwardation, and only when 1) the market fears a collapse in the currency, and/or 2) the market is worried about counterparties making good on their promise to deliver gold (which was briefly the case in 1999, when the Washington Agreement was announced and shorts were squeezed).

Translation: Gold is about to meltup, and the dollar is about to have an accident.

Buckle up, gold bulls. Gold is set to blow its top soon in my humble opinion.

*** end

Yesterday, we heard that the Perth mint is suspending all orders for bullion coins because of a lack of metal:

Mint suspends orders amid rush to buy bullion

FEARS of the unknown long-term effects from the global financial crisis have sparked a new gold rush.

With retail and wholesale clients around the world stocking up on the precious metal, the Perth Mint has been forced to suspend orders.

As the World Gold Council reported that the dollar demand for gold reached a quarterly record of $US32 billion ($50.73 billion) in the third quarter, industry insiders said the race to secure physical gold had reached an intensity that had never been witnessed before.,28124,24687337-643,00.html end

Now for economic news:

The Dow which retreated for most of the day, rose by 485 points in a Hail Mary play.  Wall Street announced that Timothy Geithner would become the new Sec. Treasurer of the usa.  The market responded to full excitement with that news.

To tell you the truth, if they announced Donald Duck to be the new  Sec. Treasurer or even Al Capone, the market would have responded in identical fashion.  Yesterday was options expiry and generally you get big moves like that on this day.


Prior to the goosing of the market we saw major hits in the financial sector.  The big three pillars in the financial world are collapsing.  JPMorgan saw its price fall to a low of 19.69 only to recover in the last hour to 22.70  It is down from 38.00 in July.  Citibank saw its share price plummet to 3.05.  It still closed down by 94 cents to 3.70.  The Bank of America saw its share price fall to a low of 10.03 and it closed under 11.00 for the first time ever.


The Bank of America  has seen its stock price fall everyday since the final merger of Countrywide and BAC was complete.

With foreclosures popping faster than newly roasted popcorn, it bewilders me why they merged.  They have a fiduciary duty to the shareholders, not the Fed.

Libor rates remained flat on Friday at 2.16% in the 3month usa rate. The lending lines at the banks remain clogged.

We are hearing that 100,000 factories in China are closing because of lack of demand.  Very soon we will scarcity of product over here.

Goldman Sachs is in the news again.  These two stories are newsworthy:

Goldman Slashes U.S. Growth Forecasts, Says Recession Deepens

Nov. 21 (Bloomberg) -- Goldman Sachs Group Inc. increased its recession estimates, saying gross domestic product is declining at a 5 percent annual rate in the current quarter and will drop 3 percent and 1 percent in the next two quarters.

Unemployment will reach 9 percent by the fourth quarter of 2009, Goldman economists led by Jan Hatzius wrote in a research note today.


Loan investors accuse Goldman Sachs of naked shorting

Submitted by cpowell on 09:27PM ET Thursday, November 20, 2008. Section: Daily Dispatches

By Pierre Paulden and Caroline Salas
Bloomberg News
Monday, November 17, 2008

NEW YORK -- Investors in the $591 billion high-yield, high-risk loan market are accusing Goldman Sachs Group Inc. of naked short selling to profit from record price declines.

At least two fund managers complained verbally to officials of the Loan Syndications and Trading Association, saying they believe Goldman helped drive down prices by using the technique, according to people with knowledge of the objections. New York-based Goldman is acting against its clients by trying to profit at their expense, the investors said.

A $171 billion drop in the value of the loans in the past year is pitting banks against investing clients on assets once considered so safe they typically traded at par. The drop exposed flaws in an unregulated market where trades can take from several days to months to settle and banks may have information unavailable to investors. In a naked-short transaction, a firm would sell debt it didn't already own, betting the price will fall before it purchases the loan and delivers it to the buyer.


I am going to highlight what one member  Bill H. had to say about the banking crisis.  I could not have said it better:

Bill H:

(Hi Bill, OH YES Tim Geithner will save the world! Funny thing, as far as I know this is the first time in 20 years or so that Gold and the S+P have traded at parity. Next stop is Dow/Gold parity.)

To all; WOW is my description of the last 3 days. I left for two days and got back to very high winds that took cable and internet down for about 24 hours. I got up this morning and went to a satellite internet location, pulled up some quotes and PRESTO, a new world? In just 3 days the banks and previously investment banks have completely imploded!

I took a look at Citibank and and refreshed the quote twice thinking it was wrong [$3.83]. This gives them a $20 Billion market capitalization! This is PEANUTS, last year Warren Buffet had a net worth of $50 Billion. Citi has a balance sheet of something close to $2 Trillion or roughly 100 times what the market says they are worth. While perusing the other financials such as GE, Bank of America, Goldman and Morgan Stanley, and even the Treasury Bank [JP Morgan], I got the feeling that game over has finally arrived. The reflation that I've have talked about for quite a while now must begin or there will be nothing left to reflate. If we were to have similar action again next week then market closures will surely domino around the world.

Think about what has happened in just 2 weeks time, most financial stocks have shed 50% value or more, this has been a crippling event. There are no options left, Every kitchen sink has been thrown and every rabbit pulled. Now surely the Treasury and Fed will come under the global financial microscope. This cannot go on without serious money asking serious questions about the solvency of the U.S. government. We all know the answer, it is now as simple as 2+2. However, this answer is most unbearable. The U.S. will take the entire system as we know it down, all the while with a smiling Mad Magazine face...What, me worry?

All the spin, all the PPT support, all the Gold suppression, all the borrowed and printed money, all of the accumulated BULLCRAP for years and years are now coming home to roost. Low inflation, low unemployment, low interest rates, strong Dollar policy, fiscal stimulus, monetary stimulus, Warren Buffet is buying, Sovereign cash infusions, the Fed's balance sheet, Treasury's TARP, etc. etc., nothing has worked. It couldn't work. No matter how hard they tried, Humpty Dumpty couldn't be prevented from falling and cracking his head wide open. He accumulated ar too much baggage. No Ponzi scheme can ever go on forever and forever has arrived.

At this point YOU MUST OWN GOLD. The sentiment has changed metal has disappeared across the globe and a force majeur looks to be a lock. The day of financial reckoning that had to come because of pure mathematics has arrived and all that remains is the final act of a failed 30+ year Ponzi scheme. The last thing to fail is the money and the final act always involves the money. In fact come to think about it, the Dollar and Gold are truly the only two assets left still standing. Handicapping this fight from here is so easy as the Dollar has "ball and chain" encumbrances all over it while Gold has no liabilities whatsoever. "The last man standing" will be the foundation of worlds' banking system for many years to come. Choose your fighter wisely as backing the loser in this fight will certainly be financial death. Regards, Bill H.  end

Argentinians are getting ready to riot on the streets as passage of the confiscation of private pension plans passed the house yesterday:

Argentine Stocks Threatened as Biggest Holders Seized

Nov. 21 (Bloomberg) -- Argentina’s stock market is fading as the state seizure of the nation’s biggest shareholders undermines investor confidence and threatens an equity sell-off.

The Argentine Senate last night approved President Cristina Fernandez de Kirchner’s plan to nationalize about $24 billion in private pensions, a move opposition parties called a cash grab and the government said is a way to protect retirees from the worst financial crisis since the Great Depression.

For the Buenos Aires Stock Exchange, the government’s decision underscores the growing irrelevance of a market whose listed stocks dropped to 82 from a record 669 four decades ago and is discouraging outside investment because of capital restrictions…


The key event for me is seeing the complete collapse of JPMorgan stock in a matter of a few weeks.

The question of course is what has caused this firm with direct ties to the fed to implode so quickly.

JPMorgan has the dominate share of the trillion dollars of interest rate swaps, gold and silver leases and credit default swaps.  JPMorgan is the garbage can of the derivatives consuming everyone to satisfy their voracious appetite.  However at its outer end comes flatulence and this is becoming glaring for everyone to see.  There is now no doubt that the Citibank and  General Motors meltdown has caused serious damage to its balance sheet and off balance sheet.  This is probably why we have not seen these bandits whack gold for a week, they must address their huge off balance deficits. The credit default swaps must total in the megatrillions.

There are also rumours that the PPT have losses of .5 trillion - .75 trillion dollars.  They are now in a mad rush to cover these losses.


In a nutshell, the world is imploding faster than a speeding bullet.  Either we inflate or we will suffer a massive depression.  The debt default spiral is gaining momentum, faster than the momentum to print currency to stave off depression.


I guess we have to pick our poison.

Speak to you next week








Thursday, November 20, 2008

Nov 20.08 commentary.

Good evening Ladies and Gentlemen:


I would like to extend my good wishes to Mark Goldberg, a gold enthusiast and foremost authority on gold coins, who is now in perfect health after undergoing new and radical medical  treatments.  He will continue to supply me with knowledge from the gold coin side of things to which I am truly grateful.


In economic news today, I guess we must visit the stock market.  The Dow fell badly by 442 points with the financials falling off the cliff.


Bank of America fell below 12.00.  Goldman Sachs fell below 53.00.  Citibank finished at 4.70 per share and General Electric traded in the mid 12`s.  The 30 year bond rose a full 3 points as everyone rushed to this `safe haven`. 
Today, JPMorgan released news that they were letting go 2000 employees and then their stock tanked.  JPMorgan fell below 24.00.


Libor continues to remain constant.  Today it closed at 2.15% hardly a change from yesterday.

In some strange developments, the Swiss National Bank announced that it was targeting its borrowing rate at 1% Libor.  This is difficult to figure out why.


The stock market got an early boost when news came that their might be a rescue.  However it was short lived and the market resumed its downward trajectory.


New claims for unemployment insurance benefits rose significantly higher by 27000 people last week. The seasonally adjusted  claims for insurance benefits rose to 542000 people.  They projected 517000.


And now for the manufacturing report:  First the Philly Report.


Philly Fed Nov factory activity hits new 18-yr low

NEW YORK, Nov 20 (Reuters) - Factory activity in the U.S. Mid-Atlantic region fell to another 18-year low in November, a survey showed on Thursday.

The Philadelphia Federal Reserve Bank said its business activity index fell to minus 39.3 from minus 37.5 in October.

Any reading below zero indicates contraction in the region's manufacturing sector.

Wall Street economists had expected a reading of minus 35.0, according to a Reuters poll. Their 62 forecasts ranged from minus 45.0 to minus 24.8.

The survey of factories in eastern Pennsylvania, southern New Jersey and Delaware is scrutinized as one of the first monthly indicators of the health of U.S. manufacturing.

A similar gauge for New York state tumbled in November to yet another record low in its seven-year history, the New York Federal Reserve said on Monday.


The Philly report is manufacturing in the Philadelphia area.  It fell to minus 39.3 from minus 37.5 a record low.

Anything below zero indicates contraction.  Minus 39.5 means a major contraction.


Then we got this from the Conference Board on leading indicators:


US Conf. Board leading indicator falls 0.8 pct in Oct

WASHINGTON, Nov 20 (Reuters) - The U.S. Conference Board's index of Leading Economic Indicators fell more than expected in October, as stock prices dropped and consumer expectations weakened, the research group said on Thursday.

The index fell 0.8 percent to 99.6 after rising by a revised 0.1 percent in September.

"The economy is contracting, and the pace of contraction may intensify over the next few months," said Ken Goldstein, economist at the Conference Board.

Wall Street analysts had expected the leading index, a gauge of future economic conditions, to fall 0.6 percent.

We are continuing to see a widening on credit default swaps indicating increasing risk of default on public companies traded on Wall Street:


US CDS index out 25 bps to record 270 bps-Markit

NEW YORK, Nov 20 (Reuters) - U.S. credit default swaps extended a sharp widening trend on Thursday, with the main investment-grade index widening 25 basis points to a record 270 basis points, according to data from Markit Intraday.

Concerns about the ailing commercial real estate market and mounting troubles at U.S. automakers were weighing on investors' appetite for risk, strategists said.


This is perhaps the most important passage of the night:

Fed's cash injections risk eclipsing main interest rate

WASHINGTON -- The Federal Reserve's efforts to rescue the U.S. from financial collapse risks the eclipse of the central bank's benchmark interest rate as the most important signal of monetary policy.

Record injections of liquidity have driven the overnight lending rate between banks to less than half the 1 percent target set by officials last month. The gap is shifting investors' focus toward the amount of money in the banking system as a better gauge of Fed intentions…

Maybe this is why the Fed announced that the December meeting will be two days instead of the planned one day.  Something big is going on.

Bob Chapman, today wrote about the coming default on the comex.  I have forwarded this to you;

Bob Chapman: The last days of the crooked Comex


Submitted by cpowell on 09:27PM ET Wednesday, November 19, 2008. Section: Daily Dispatches


12:22a ET Thursday, November 20, 2008


Dear Friend of GATA and Gold:


In excerpts from the new issue of his International Forecaster letter, Bob Chapman predicts the fall of the New York Commodities Exchange, as speculators realize that the exchange is rigged in favor of the shorts and profitably used by longs only for removing the little metal available through it. Chapman expects the Comex to be replaced by a commodities exchange in Dubai, which he speculates is OPEC's response to the smashing down of oil in New York. Chapman's commentary is headlined "International Forecaster November 2008 (No. 6) -- Gold, Silver, Economy, and More," and you can find it at GoldSeek here:


CHRIS POWELL, Secretary/Treasurer.


I urge you all to read his commentary at news.goldseek.

As I have mentioned in previous commentaries, the debt deflation is causing a stranglehold on the economy. The banks have huge amts of subprime, prime, alt a`s,collaterized  commercial paper, credit default swaps, and  losses on credit default swaps etc. on their books.  All banks know they are in trouble and they refuse to loan because they know the creditworthiness of the borrower is suspect.  As this intensifies,  Main Street gets infected  and the  entire market  seizes up.  The Fed now becomes frantic as they print massive  dollars to shore up the banks balance sheet and also to cover their current account deficit.  The latter is very inflationary but it is minor to the massive debt deflation and the mammoth deleveraging caused by the hedge funds failing and commodity routs of the past few months. Citizenry are shellshocked and do not know what to do or what to invest in.  Everything, on the investment side of things, is going down!!

If the Fed cannot reinflate the bubble soon, a severe depression will be upon up and it will be a hyperinflationary depression with higher prices on some goods, lower prices on houses, collectables etc  and a complete stagnation on the economy.   Services will rise as they sniff out the massive printing of dollars. It will not be a pretty site.

Speak to you on Saturday




















Wednesday, November 19, 2008

Nov 19.08 commentary.

Good evening Ladies and Gentlemen:


First of all, the World Gold Council came out with their demand and supply figures.  Here is the article:


Retail-based demand jumps even as institutions undergo a massive exodus

By Moming Zhou
Wednesday, November 19, 2008

NEW YORK -- Retail investors sharply increased their demand for gold bars and coins in the past few months as they struggled to find a safe place for their money amid the financial crisis, research shows.

But institutional investors have kept the upper hand, according to Wednesday's report from the World Gold Council, a gold mining industry association. Heavy selling by institutions has more than offset retail buying and pushed gold prices to their lowest level in more than a year.

Moves by retail investors, including demand for bars and coins, resulted in a net inflow of 232 tons (7.46 million ounces) in the third quarter, compared to 105 tons in the same time frame a year ago.

The figures, compiled independently for the council by GFMS Ltd, a precious metals consultancy, show strong bar and coin buying in Swiss, German, and U.S. markets.

Meanwhile, gold holdings in exchange-traded funds rose 150 tons, compared with an increase of 4 tons in the second quarter and 139.5 tons in the third quarter a year ago. The peak in ETF inflows occurred in late September after the collapse of Lehman Brothers.

Much of that money added to the gold holdings in the SPDR Gold Trust (GLD), the largest gold ETF, to more than 770 tons in October, a cache that exceeds the official holdings of Japan, which has the world's seventh-biggest gold reserves.

Demand for physical gold didn't slow even when some financial institutions were forced to sell their gold assets to ease the squeeze in their cash balances….

"Funds who would like to keep their asset of last resort are being forced to sell," said Peter Spina, an analyst at "This is causing weakness in the paper gold market price but it is not a true reflection of the physical market."

"There will be more victims of the fund collapse and more forced liquidations even if it requires selling your most desired assets such as precious metals," he added. "Once this process works itself through, the true market prices for gold will readjust."

Gold futures closed at $732.80 Tuesday on the Comex division of the New York Mercantile Exchange, more than 25% lower than its record high above $1,000 an ounce hit in March.

Comex futures dropped to below $700 an ounce last month, the lowest since September 2007.

The London gold-fixing price, a benchmark for gold traded between big institutions, stood at $738 an ounce, down 28% from its record high of $1,023 hit in March.

Despite selling on the institutional side, physical demand for the metal has remained strong.

Including industrial and dental use, physical gold demand in dollar value hit an all-time high of $31.8 billion in the third quarter, the WGC reported. In tonnage terms, it stood at 647.6 tons, the highest since the second quarter of 2007.

... Institutions dump gold

On the other side of the tussle, some institution investors sharply reduced their gold holdings for much-needed cash in the face of the credit crunch.

Institution investment saw a net outflow of nearly 300 tons in the third quarter, according to the WGC, which more than offset the inflows in the retail sector.

Big institutions trade with each other directly in large orders through the opaque over-the-counter markets. They also bet on futures exchanges in New York, Tokyo and a few other places.

Gold was "one of the few assets remaining that could be sold at a reasonable price to meet margin calls on other, worse-performing assets," the WGC said in the report.

The significant outflow in the institutional level explains why the gold price did not perform better in the face of strong jewelry buying and demand for physical gold, the WGC said in the report.

Comex gold futures topped $900 an ounce in September after Lehman's bankruptcy filing. But prices have since seen roller-coaster declines. Futures tumbled 18% in October, the largest monthly loss since February 1983. See story on slumps in gold prices.

Some analysts said gold prices would rebound soon as much of the selling that occurred among institutions had a short-term focus and did not reflect a decline in gold's fundamentals.


Even the World Gold Council to whom we do not trust to give an accurate assessment of gold demand, came out and stated that world gold was reaching record levels only to be offset by a 300 tonne central bank sale.

Gee: Three guesses as to which central bank that sold.

This story is certainly bothering Mr Paulson:

China Mulls Raising Gold Reserve By 4,000 Tons: Report

From Dow Jones Newswires
Wednesday, November 19, 2008

BEIJING -- China's central bank is considering raising its gold reserve by 4,000 metric tons from 600 tons to diversify risks brought by the country's huge foreign exchange reserves, the Guangzhou Daily reported, citing unnamed industry people in Hong Kong.

The newspaper didn't elaborate on the plan.

China's forex reserves, at $1.9056 trillion at the end of September, are the world's largest. U.S. dollar-denominated assets, including U.S. treasury bonds and mortgage agency bonds, account for a big proportion of the forex reserves. end

Libor continues to remain high.  It was set at 2.17% down a tad.


The biggest news today was the fall in 3 huge Dow financials.  Citibank closed down 10% to 6.40$.  General Electric fell below 15.00 to close at 14.67$ and Goldman Sachs fell below 60.00 for the first time ever to close at 55.80.  The Dow retreated 424 points.  However it took the gold index with it with the xau down a full 3 points.


In other economic news, housing permits was at an all time low:

US October housing starts, permits at record low

WASHINGTON, Nov 19 (Reuters) - Construction starts on new U.S. homes fell to a record low in October, as did new applications for building permits, a report by the Commerce
Department showed on Wednesday, signaling that the national housing downturn may extend well into the future.

Housing starts fell 4.5 percent to a seasonally adjusted annual rate of 791,000 units from September's 828,000 units.

New applications for building permits, which give a sense of future home construction, plummeted 12 percent to 708,000 from 805,000 in September.

The record low for housing starts exceeded Wall Street expectations, however, as analysts polled by Reuters had expected them to tumble to 780,000 units. They also forecast that permits would reach 780,000.


The consumer price index dropped a full point as oil retreated from 147 dollar per barrel to the present day 54.00.


With the economy faltering badly, no wonder this news came out:

Fed likely to cut funds rate to the bone

CHICAGO, Nov 19 (Reuters) - The Federal Reserve seems almost guaranteed to wade into unchartered waters in December and cut its benchmark lending rate below 1.0 percent.

Unrelenting bad news on the U.S. economy, reflected most recently in minutes from the Federal Open Market Committee's October policy meeting issued on Wednesday, suggest another interest rate cut is in the works, even as rates approach the so-called "zero bound."

"Some members were already feeling that additional policy easing could be appropriate ... given recent data and developments in financial markets, 'some' may have turned into 'most," said Rudy Narvas, analyst at 4CAST Ltd in New York.

Short-term interest rate futures fully price a cut in the fed funds rate to 0.5 percent from 1.0 percent at or before the Dec 16 policy meeting.

The effective fed funds rate averaged 0.63 percent in May 1958, the lowest level shown by Federal Reserve Board records dating back to 1954...  end


However, the following is very earth shattering.  The agency paper of Fanny and Freddie continue to climb. These bonds are now trading at 167 points higher than 10 year Fed Paper.  And the Feb supposedly guarantees this paper.  Here is the link:

Something insidious is lurking beneath the surface of the FNM/FRE agency bond market. The spread had blown out to 164 on 10-yr paper by the end of the day on Tuesday. With the Governmnet "explicit" guarantee of FNM/FRE in place, agency paper should be trading, at most, 5-10 basis points behind the equivalent maturity Treasury. The idea that there is a large of supply of agency paper saturating the market because foreign central banks are selling does not explain this spread. This is so because large hedge funds with cash, like a Soros or SAC Capital, would be arbitraging this spread in the 10-yr maturity range by buying up 10-yr agencies and selling Treasuries. This should be a true riskless arbitrage opportunity. They would do this all day long and could use plenty of leverage because is an example of a "spread" trade that a bank would be happy to finance because it's theoretically riskless. The key descriptive is "theore tically" and therein lies the problem. There is something about the U.S. Treasury's explicit guarantee of FNM/FRE that the market isn't buying. If anyone has any ideas/thoughts, I would love to hear it, because I'm baffled.

Over at the comex pits, we see massive amounts of silver and gold leave.  Not only that but only 1000 contracts of  Dec silver moved to march.  Even my son Lenny is getting a little excited.  It is getting to look like we may have a gold and silver default.  Here is the relevant link today;

On Tuesday withdraws of gold and silver from the COMEX continued with 6,903 ounces of gold removed and 314,095 ounces of silver removed. Total gold stocks now down to 8,108,978 ounces. Total silver stocks now down to 128,720,340 ounces. To show how woefully inadequate these amounts are to supply any return to gold and silver money, I checked previous U.S. coin mintage records. In 1904, the mint turned out 11,390,972 double eagles, 270,988 eagles, and 489,136 half eagles for a one year mintage of 11,270,163 ounces of gold. Similarly, in 1921 the mint produced 68,656,778 ounces worth of silver coin. These rates of production would wipe out COMEX supplies in less than one year for gold and two years for silver. In the first 10 plus months of 2008, the U.S. Mint has produced 648,500 ounces of gold eagle coin and 16,875,000 ounces of silver eagle coin. The fact that mint was able to produce gold coins in 1904 with antiquated equipment at 15 times the current rate is proof that the mint is currently either incompetent or that there is a shortage of gold.
Regards. end

Just saw the Fed debt limit published by the government.  The federal debt rose by 52 billion dollars yesterday.

Here is the link:


Debt Held by the Public

Intragovernmental Holdings

Total Public Debt Outstanding






























The previous day was 10.618 trillion and the new debt is 10.660 trillion for a gain of 52 billion dollars.

 I would like to emphasize that the overnight rate for fed money is around .40% well below the 1. per cent level. Basically the market rate for funds is much higher as evidenced by libor and the high rate for agency paper I just highlighted to you.

There is now no question that the banks are very fearful of each other.  They know that most of the banks are basically insolvent and they will not lend to anyone.  They are basically walking zombies.

If there is no lending, then the commercial lanes are clogged and goods are simply not moving.  The economy is now frozen.  In other words, the debt deflation is running faster than the Feds ability to print paper money.


We are experiencing a mammoth debt deflation coupled with a huge inflationary printing of dollar bills.  The debt deflation is winning out and this scares me greatly. The inflationary printing press is running overtime to cover the huge 2 trillion current account deficit.  The Fed is pumping money furiously to fill the banking holes but it is to no avail.


Many have asked me about the auto sector and my thoughts.  First of all, 25 billion aid to them is a drop in the bucket.

It will buy GM about 3 weeks.  Second of all:  who would buy a car from them if they are in financial peril.  Who would honour their warranties.


The situation there is very dire:  a bankruptcy would implode all of those collaterized debt swaps.  Also millions of people would be affected as would the supply lines.  A GM bankruptcy would also bankrupt Ford and Chrsyler at the same time as supply lines would be severely affected.

I think the only way out is to merge all 3 companies to one and create only a few lines and make the cars like the Japanese.

Ladies and gentlemen:  we are in a big mess.

Speak to you tomorrow











Tuesday, November 18, 2008

Nov.17.08 commentary.


Good evening Ladies and Gentlemen:


Its late and I will be brief tonight.


Today a guest on CNBC commented on the existence of the PPT.  Hosts on the show were horrified that that this guest talked about this.


As luck may have it, Wall Street saw two episodes today of manipulation.  Early with the Dow down 150 points, the markets reversed course and immediately went up 160 points, only to be smashed down by 200 points.  Then another rally for some unknown reason caused the Dow to finish up by 150 points.


However the financials were weak, with Citibank down by 50 cents finishing at 8.50.  The life insurers were very weak with Met Life and Hartford all down for the day.


In economic news, this was probably the biggest news story of the day:


US home prices fall 9.0 pct in Q3 from year-ago-NAR

WASHINGTON, Nov 18 (Reuters) - Existing U.S. single-family homes prices in metro areas fell 9.0 percent in the third quarter compared with the same period last year, the National Association of Realtors said on Tuesday.

Home values fell in 120 of 152 metropolitan areas, while four were unchanged and 28 metros experienced increases.

"A pattern of sharply higher sales in areas with large price declines is well established," said Lawrence Yun, chief economist at the National Association of Realtors.

"Affordability conditions have consistently been a major factor in driving sales. Historically during recessions, buyers have responded to incentives and it's important for government to keep that in the forefront of stimulus decisions."

The trade association said 35-40 percent of home transactions in the third quarter were distress sales that either took place through foreclosure or 'short sales' where the holder of the mortgage agrees to take a loss.


U.S. home builder sentiment tumbles to new low

NEW YORK, Nov 18 (Reuters) - Pervasive fears of job loss, financial market upheaval and recession hammered U.S. home builder sentiment to a record low in November, the National Association of Home Builders said on Tuesday.

The NAHB/Wells Fargo Housing Market index slumped five points to 9 in November, the lowest since the measure was started in January 1985. Readings below 50 mean more builders view market conditions as poor than favorable.

"These are awful numbers," said David Sloan, chief economist, North America, for 4CAST Inc in New York. "This suggests a weak housing market is taking a significant fresh hit from the credit crunch so we're going to see even more extreme weakness in the housing sector in the next few months."

The last time there was a larger one-month drop in the confidence measure was a six points drop in August 2006 to 33 from a reading of 39 the prior month.

Economists polled by Reuters had forecast the index would stay at 14 in November, the previous all-time low.

"Today's report shows that we are in a crisis situation," NAHB Chairman Sandy Dunn said in a statement. "Tremendous economic uncertainties have driven consumers from the housing market, and it's going to take some major incentives to bring them back," she said.


Home prices are falling badly and this is the collateral that banks use.  Libor continues to remain at record levels. Today it was 2.22% or a full 1.22% above par.


I take note of the continuing supply of gold and silver leaving the comex vaults.  A massive amt of gold and silver left the comex.  A total of  61000 oz or 2 tonnes of gold left yesterday and 1.2 million oz of silver left.

Here is the passage:

The withdraws of COMEX gold and silver are continuing. In gold a total of 60,999 ounces were withdrawn yesterday, with 19,268 ounces coming from the Scotia Mocatta warehouse and the remainder coming from HSBC. Total COMEX gold holdings are now down to 8,115,689 ounces of which 2,402,463 ounces is registered. In silver a significant 1,169,649 ounces were withdrawn yesterday, all from the Scotia Mocatta warehouse. That is two 18 wheelers worth, fully loaded. Total COMEX silver holdings are now down to 129,034,435 ounces. Regards,

I am giving odds of a comex failure at 80%.  With the continuing withdrawal of both metals increasing on a daily basis, it looks better each day.  The key will be next week.

Speak to you tomorrow







Monday, November 17, 2008

Nov 17.08 commentary.


Good evening Ladies and Gentlemen:


It looks like gold and silver will trade in this narrow trading range.  The open interest on gold comex fell to 289,000 a 6 year low.

Silver`s OI also fell to 92000 contracts.   Gold is leaving the comex and the supplier is Scotia Macotta.  It looks like all the bars are heading eastward.


The silver comex deliveries are up to 92 contracts or 460,000 oz ag.  We do not know the quantity of options exercised.


In economic news today, we now learn that major insurance companies are lining up for cash from the Fed:


Here is the relevant passage:


Even The Muppets on CNBC are making jokes about one industry after another finding a way to become a bank in order to qualify for government money. Hartford Life, an insurance company, is the latest one to go for it, as they are looking to become and S&L. How can this go on and on and on? Many years from today, this will viewed as the ultimate of nonsense.

A cute little PPT exercise in market support, but can’t hide the fact that all the major insurance companies have plummeted to new lows today. PRU, MET, and particularly HIG. Ambac at a new low and getting close to $1, and GS stinking up the place again. Even Ford at new lows despite Obama’s 60 Minutes interview last night. End


Hartford Insurance   (HIG) fell 3.5 dollars today to 9.50.  Prudential and Met Life also fell badly.  Ambac is trading at around a buck.  Goldman Sachs stock fell to 62.40 after hovering around 61.50 earlier in the day.  General Motors is stil trading at around 2.80 and Citibank closed at 8.89.  The Dow finished the day down by 223 points.


This did not go over well with WallStreet  re Citibank


Citigroup to cut 50,000 jobs: CNBC

NEW YORK (Reuters) - Citigroup Inc plans to cut 50,000 people from its workforce, CNBC television said on Monday, as souring economies and global credit conditions cause the U.S. bank with the farthest reach worldwide to retrench.

The job cuts are on top of the roughly 23,000 jobs Citigroup has already slashed this year, and would leave the second-largest U.S. bank with about 300,000 jobs worldwide…


This did not go over to well with respect to Goldman Sachs:<

Goldman Targeted by Investor Complaints of Naked Short-Selling

Nov. 17 (Bloomberg) -- Investors in the $591 billion high- yield, high-risk loan market are accusing Goldman Sachs Group Inc. of naked short selling to profit from record price declines.

At least two fund managers complained verbally to officials of the Loan Syndications and Trading Association, saying they believe Goldman helped drive down prices by using the technique, according to people with knowledge of the objections. New York- based Goldman is acting against its clients by trying to profit at their expense, the investors said…

-END-  .

If this wasn`t enough for Goldman Sachs, look at this probe:

Call for probe into ex-Goldman executives

By Stephanie Kirchgaessner in Washington

Published: November 17 2008 02:00 | Last updated: November 17 2008 02:00

A senior Republican senator is seeking an investigation into potential conflicts of interest among former Goldman Sachs executives serving at the US Treasury and whether any officials exceeded their authority by implementing a controversial tax change without the approval of Congress.

Chuck Grassley, the most senior Republican on the Senate finance committee, asked Eric Thorson, inspector-general of the Treasury, to investigate the "independence" of several Treasury officials who formerly worked at Goldman Sachs and serve as advisers to Treasury secretary Hank Paulson, the former chief executive of the Wall Street bank.

Mr Grassley said in a letter to Mr Thorson that there was reason to be concerned that "relationships" between the officials and board members at two merging banks, Wells Fargo and Wachovia, gave the "appearance of preferential treatment".

Mr Grassley singled out Robert Steel, a former Goldman official who worked under Mr Paulson at the Treasury before he became chief executive of Wachovia...

Mr Grassley, who has a reputation for aggressively uncovering and pursuing tax evasion, has a previous working relationship with Mr Thorson, who served as chief investigator for the Senate finance committee and whom Mr Grassley once praised for having "integrity and courage".

-END-  .

The gold cartel are not breathing well tonight with this:

Iran says it has converted some foreign currency reserves to gold

TEHRAN, Iran November 15, 2008 (AP)

The Associated Press
Post a Comment

Iranian newspapers are quoting a top adviser to President Mahmoud Ahmadinejad as saying the country has converted some of its foreign currency reserves into gold.

The papers published Saturday did not say how much of Iran's estimated $120 billion in reserves were converted into gold. Iranian officials could not immediately be reached for comment…


We have had numerous reports of coin-melt bars appearing at refiners.  The only official gold that is not .999 gold is the gold at Fort Knox. We cant only speculate that the usa is selling its gold to keep the bonds up and the dollar up to prevent a meltdown.  


Here is the link:

"A refiner I spoke to today in Dubai has seen Fort Knox bullion bars come through his shop. They and other refiners in this major gold trading center are very short of metal. The premium above spot is $9/0z, the highest ever. Gold is in backwardation so a rational strategy would be to buy December Comex futures and take delivery to book that immediate profit. Comex shorts stand at record levels on a gross basis of 8.1mm ounces while spec longs are at the lowest level in 5 years. Comex warehouse stocks are well below the level that could satisfy demand if only some of the longs took delivery instead of rolling contracts. Physical demand from India and other Mid and Far East markets is unprecedented at these depressed prices. Comex short interest is naked, or otherwise dealers in physical gold would be seeing supply. By the way, it is beyond me that the gold producing industry has not blitzed the financial media with a picture of bullion captioned with "no counterparty risk" or something of that nature. The industry’s failure to seize the moment is profoundly disappointing. Everyone I meet here is huddled in short term treasuries, the riskiest asset class of all. Nevertheless, it seems that the ingredients for a short squeeze are in place. Macroeconomic considerations await the chain of monetary creation and the sprocket of financial speculation to connect."

You will note that the comex net short is at record levels  (8.1 million oz) and the spec longs are at the lowest level in 5 years.  This is why the OI is at record low values.

The month of December is will be very interesting for gold and silver deliveries.


Today we also saw Libor rise to 2.24% from 2.21%.  The banks refuse to loan to each other.  What is even scarier is the one month bank rate fell to .04% on an annual basis.  In other words, the bank will pay you nothing for your money; however it costs money to store your `valuable`dollars at the central bank. Generally when you see 1 month treasuries at almost zero levels spells trouble for the markets


There is no question that the debt deflation is running at a faster clip than central banks around the world are printing money.  We are witnessing both inflation and deflation at the same time.  The problem is deflation is winning out over inflation.


The solution to the problem is to reflate the world.  They must revalue gold at say 10,000 dollars per oz.

In other words, we devalue all currencies around the world at say 10 to 1.  Let there be 3 centers like the Amero for North and South America,  Europe  with the Euro and Asia with a 3rd currency.

We pay off all debts at the old rate and start again.  This will be the painless way and will avoid costly riots on the street and stave off bloodshed.  I can see no way out but this.


Larry Edelson wrote a great article on this subject.  It is what our group have been calling for.  You will find it at my website:


Scroll down the right side of my site  after the Kitco quotes on gold and silver to get the paper.  You will find it worthwhile.

Speak to you tomorrow











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