www.lemetropolecafe.com
Good evening Ladies and Gentlemen:
Tonight, my son Stephen is assisting me in writing this important commentary. He has been helping me write these commentaries throughout the past 2 months.
Gold closed down by 42.00 $ to 770.00 Silver fell by 84 cents to 9.49.
You could tell that the cartel was going to be quite active last night as Asian stock markets tanked. Markets continued to fall in Europe and then spiralled down in NY with the Dow down by 679.00 points, the Nasdaq down by 131 points and the Toronto TSE down over 850 points or 9%
This is earth shattering: USA treasury credit swaps rise to record levels:
TREASURY 5-YEAR CREDIT DEFAULT SWAP SPREAD WIDENS TO 52.5 BPS - CMA DATAVISION
U.S. TREASURY 10-YEAR CREDIT DEFAULT SWAP SPREAD BLOWS OUT TO RECORD 68.4 BPS - CMA DATAVISION
LONDON, Dec 1 (Reuters) - The spread or risk premium on 10-year U.S. Treasury credit default swaps hit a record high on Monday, extending a recent trend as market participants continued to fret about the scale of the government's financial rescue programmes.
Ten-year U.S. Treasury CDS widened to 68.4 basis points from Friday's close of 60 basis points, according to credit data company CMA DataVision.
Five-year Treasury CDS widened to 52.5 basis points from 46 basis points at Friday's close, it said.
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This signals that investors around the world are starting to be aware the US is more at risk of default on its debt. The ultimate conundrum is usually when Government CDS widen, this leads to a general increase in interest rates, however we saw the opposite affect today with interest rates lowering and bond prices moving higher. This is all par for the course with the cartel who whacked gold in conjunction with the negative Dow average so that treasuries can be viewed as a better safe haven than precious metals. All those that are investing in treasury bonds eventually will flee in panic since there is no way the USA can ever pay off their debt.
What is totally fascinating is that 10 yr treasuries have an all time low yield of 2.72 % tonight. The yield on 2 yr treasuries is below .90% and 1 and two month treasuries are basically zero. In other words bond yields are lowering and yet credit default swaps on usa treasuries are rising as the world perceives increased risk in owning government bonds. Usually, as risk on the bonds increase we see an increase in yield. However the government is using the printing press to buy all of those treasuries with their newly minted dollars.
Today, libor came in at 2.22% basically unchanged from Friday. The banks still do not trust one another. The entire clearing system among the banks are in total shock.
As for the gold and silver comex we have the following to report. So far in gold 1.5 million oz of gold stand. In silver with all the dust settling, it looks like 32.5 million oz will stand.
The open interest on both gold comex and silver comex continue to contract. The gold OI now is down to 272000 and silver’s Oi is now at 84000.
This was by far the biggest news of the day:
Pimco cancels dividend payments for 6 funds
Pimco cancels dividend payments for 6 funds, citing decline in value due to market woes
December 01, 2008: 10:03 AM EST
NEW YORK (Associated Press) - Pacific Investment Management Company Inc. on Monday canceled announced dividend payments for six of its funds, saying the weak market has pushed the value of those funds below legal thresholds.
The dividends declared Nov. 3 that were scheduled for payment Monday will not be paid for Pimco New York Municipal Income Fund, Pimco Municipal Income Fund II, Pimco California Municipal Income Fund II, Pimco Municipal Income Fund III, Pimco California Municipal Income Fund III and Pimco New York Municipal Income Fund III…
http://money.cnn.com/news/newsfeeds/articles/apwire/
56a9afed2e2a40229427bc8559c928c0.htm
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Pimco is the worlds largest bond fund and they are cancelling dividend payments citing declining value and market woes.
The second biggest news came from California. I am trying to get the particulars on this:
Fox news reports this:
Another bombshell late:
16:10 DJ *Calif Gov Declares State Fiscal Emergency -Fox Business EOM
Arnold Schwartzenegger just announced that the California government needs to convene emergency budget cut discussions as they are in a fiscal state of emergency. The “governator” stated that that California only has enough money to last until February 2009. There is tremendous pressure to raise taxes in California, however he has remained steadfast in not raising any taxes in 2009, so expect large layoffs to start the new year in California.
You will recall that their deficit for 2007 was 10 billion and it has now risen to over 22 billion dollars. This 6th largest economy in the world is in serious trouble.
In other news:
U.S. Oct construction spending fell 1.2 percent
WASHINGTON, Dec 1 (Reuters) - U.S. construction spending fell a steeper-than-expected 1.2 percent in October after the prior month was revised to unchanged, a Commerce Department report showed on Monday.
Analysts polled by Reuters ahead of the report were expecting a 1.0 percent decrease in overall construction spending after a 0.3 percent drop originally reported for September.
Private home building was off 3.5 percent, the sharpest fall since a 6.2 percent decline in July, while total public construction rose 0.7 percent.
-END.
And then this:
US manufacturing index falls to 36.2 in Nov-ISM
NEW YORK, Dec 1 (Reuters) - U.S. factory activity fell in November to its weakest since 1982, according to an industry report released on Monday.
The Institute for Supply Management said its index of national factory activity fell to 36.2 in November from 38.9 in October, below economists' median forecast for a reading of
37.0.
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Then we see the following two news stories:
US insured mortgage defaults top 80,000 in October
NEW YORK, Dec 1 (Reuters) - Defaults on privately insured U.S. mortgages rose 35 percent in October, and topped 80,000 for the first time, as the troubled economy caused more homeowners to fall behind on payments.
The Mortgage Insurance Cos of America on Monday said 80,071 insured borrowers were at least 60 days late on payments in February. That is up from 59,308 a year earlier, and surpassed the previous record of 76,776 set in September.
On the other hand, mortgages brought up to date totaled 43,211, up 30 percent from a year earlier and 4 percent from September, as lenders and the U.S. government stepped up remediation efforts to keep borrowers out of foreclosure.
Late payments are often a precursor to foreclosure. MICA, a Washington, D.C. trade group, has tabulated insurance default data since 2001…
-END-
Credit card industry may cut $2 trillion of lines: analyst
(Reuters) - The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.
The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.
"In other words, we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent."
Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co represent over half of the estimated U.S. card outstandings as of September 30, and each company has discussed reducing card exposure or slowing growth, Whitney said.
A consolidated U.S. lending market that is pulling back on credit is also posing a risk to the overall consumer liquidity, Whitney said.
Mortgages and credit cards are now dominated by five players who are all pulling back liquidity, making reductions in consumer liquidity seem unavoidable, she said.
"...We are now beginning to see evidence of broad-based declines in overall consumer liquidity."
"In a country that offers hundreds of cereal and soda pop choices, the banking industry has become one that offers very few choices," Whitney wrote in a note dated November 30.
She also said credit lines to consumers through home equity and credit cards had been cut back from the second-quarter levels.
"Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view," the analyst said.
-END
Notice that private mortgage defaults have risen quite dramatically and now we see the credit card lines are being pulled.
The banks are now risk averse and this is causing a massive deflationary spiral in total sync. to the Fed printing money paying for their debt.
This is scary:
Russia is imploding:
Russia Manufacturing PMI Drops to Lowest on Record
Dec. 1 (Bloomberg) -- Russian manufacturing shrank more in November than during the 1998 financial collapse as the global economic crisis drove output and new orders to record lows and companies cut jobs, VTB Bank Europe said.
VTB’s Purchasing Managers’ Index fell for a fourth month to 39.8, its lowest level, from 46.4 in October, the bank said in an e-mailed statement today. The previous low was 43.2 in September 1998, a month after the government’s ruble devaluation and default on $40 billion of debt. A figure above 50 means growth, below 50 a contraction. The bank surveyed 300 purchasing executives….
-END-
JPMorgan is the worlds largest derivative player in gold and silver. Here one member discusses the huge short position in gold held by JPMorgan:
That was a very interesting gold report by JPM that was included with the Saturday Midas. It was interesting concerning what was outlined, but also for what was not mentioned.
The JPM gold report did not mention their huge gold derivative position as reported to the Office Of The Comptroller Of The Currency (OCC). I decided to check and see how the JPM gold derivative position has varied over the years. This information can be found at the link included below. For the 2nd quarter of 2008 (Q2,2008), the JPM gold derivative position is found on page 29.
www.occ.treas.gov/deriv/deriv.htm
It can be seen that JPM is by far the largest player in gold derivatives as reported to the OCC. There is no other entity that is even a close second. A sampling of the JPM gold derivative position is shown below.
Time Period Notional Gold Derivative Position (billions of $)
Q2, 2002 45.1
Q2, 2003 35.5
Q2, 2004 41.0
Q2, 2005 36.6
Q2, 2006 51.2
Q2, 2007 57.6
Q3, 2007 61.0
Q4, 2007 77.0
Q1, 2008 95.2
Q2, 2008 85.3
With the global gold hedge book declining from 102 Moz in 2001 to 16.5 Moz in Q3, 2008, one would think that the JPM gold derivative position should be declining. In fact, the exact opposite is occurring as shown above. To put this into perspective, I decided to check and see how $85.3 billion would affect the gold market.
For the sake of discussion, let's say that JPM was responsible for hedging the entire global gold hedge book of 16.5 Moz. At $816.20/oz, that works out to $13.5 billion. That still leaves JPM with $71.8 billion to play around with.
The current gold open interest on the Comex is 276,092 contracts which works out to 27,609,200 oz. At $816.20/oz, that works out to $22.5 billion assuming JPM is responsible for the entire short position on the Comex. For discussion purposes, that still leaves JPM $49.3 billion to play around with.
Even though JPM does not have a listing on the Tocom like GS, let's say that JPM was responsible for the entire short position on the Tocom which works out to $1.9 billion. That still leaves $47.4 billion.
Let's say that JPM and/or their clients owned every single ounce of gold for the GLD ETF and felt the need to hedge every single ounce. The GLD ETF currently holds 24,374,299 ounces which works out to $19.8 billion. That still leaves $27.6 billion.
Bill, I am running out of gold items to short on behalf of JPM.
The $85.3 billion in gold derivatives by JPM is the reported figure to the OCC as of Q2, 2008. My guess is that JPM covered some of their shorts in the third quarter and the $85.3 billion in gold derivatives should be reduced for the third quarter. I just wanted to know how $85.3 billion affects the gold market.
In their gold report, JPM stated, "Gold might be in the early stages of a disconnect from the dollar." My translation - it doesn't matter what the dollar does right now because available central bank gold is running very low and demand is extremely strong. JPM has indicated that gold is going up regardless of the US dollar.
JPM also stated, "We would like to see gold perform in absolute terms, but we are very happy with gold's outperformance of the S & P 500 as seen in the following chart." If JPM is very happy with gold's current out-performance, they should be "ecstatic" when gold eventually blows through $6,000/oz.
Paul.
You might notice that JP Morgan, a.k.a. the “Fed’s Bank” tanked about 17% today to 26.12 on the NYSE. (falling by $5.54 dollars). This suggests to me that there is a derivative time bomb about to ignite in the very near future. JPMorgan has over 180 trillion of derivatives in both interest rate and commodities.
Here is shocking news coming from the JP Morgan camp:
J.P. Morgan sees Fed cutting rates to zero in Jan
NEW YORK, Dec 1 (Reuters) - The Federal Reserve will lower its policy rate to zero percent by January in its attempt to avert a prolonged recession and to revive the struggling credit market, according to J.P. Morgan Securities analysts.
The Fed will likely hold its target rate on benchmark federal funds -- the overnight cost banks charge each other to borrow surplus reserves -- at zero at least through the end of 2009, J.P. Morgan analysts wrote in a research note published on Monday.
The Fed's fed fund target rate is currently 1.00 percent. The U.S. central bank began its rate-cutting campaign in September 2007 when the fed funds target was at 5.25 percent.
A number of analysts widely expect the Fed to lower the policy target rate to 0.50 percent at the end of its Dec. 15-16 meeting. Some predict the U.S. economy may contract by an annualized 4.0 percent in the fourth quarter.
J.P. Morgan analysts now see the Fed stepping up its rate easing in conjunction with its various financing programs and proposed fiscal stimuli in the coming months.
They predicted the Fed will pare the fed funds target rate by half a percentage point at its December meeting and by another half point at its Jan. 27-28 meeting…
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There is no question that there is a race for zero interest rates. The world is imploding and all countries will see a race towards zero.
It looks to me like the Fed has totally liquidated its gold supply at Fort Knox and the Federal Bank of NY. It is totally fascinating that the Governor of the Bank of NY is non other than Timothy Geithner, the new Sec Treasurer. This gentleman has more knowledge on gold movement and the inner workings of the cartel than any other individual in the usa. I hope individuals get to ask questions of this when he has his confirmation hearings.
Speak to you tomorrow
Harvey.
