Saturday, December 13, 2008

Dec 12.08 commentary.


Good Morning Ladies and Gentlemen:


First of all, on Thursday night, we heard that  the giant fund Madoff Investments was nothing but a Ponzi scheme.  Bernard Madoff, the former Chairman of the Nasdaq was arrested Thursday night and admitted that his 50 billion dollar fund was nothing but a phoney.  Here is the link:]


Madoff Confessed $50 Billion Fraud Before FBI Arrest

By David Voreacos and David Glovin

Dec. 12 (Bloomberg) -- Bernard Madoff confessed to employees this week that his investment advisory business was "a giant Ponzi scheme" that cost clients $50 billion before two FBI agents showed up yesterday morning at his Manhattan apartment.

"We’re here to find out if there’s an innocent explanation," Agent Theodore Cacioppi told Madoff, who founded Bernard L. Madoff Investment Securities LLC and was the former head of the Securities Industry Association’s trading committee.

"There is no innocent explanation," Madoff, 70, told the agents, saying he traded and lost money for institutional clients. He said he "paid investors with money that wasn’t there" and expected to go to jail. With that, agents arrested Madoff, according to an FBI complaint.


This man was held in high esteem in NY and this event has certainly shattered Wall Street.  My bet is that this firm has many  failures to deliver on many bonds, which  will certainly  bankrupt other firms as you will witness cascading defaults.  My bet is that this firm was short huge amts of silver and gold as they  used the proceeds to fund  redemptions and “profits”.   The firm consistently reported above average profits.  This year they reported flat earnings despite the huge downfall in the economy.

This fraud will be far reaching and create havoc for the regulators.


I would like to point out that this Ponzi scheme has been going on for 20 years.  The auditors have a tiny 13 foot by 18 foot office.  It seems that nobody saw anyone in their office during the day.  Only a few entered the premises at night.


There were many people waiving red flags at this company but to no avail.  Many will lose their entire savings.



As many of you know, the senate could not get the required 60 votes for the auto rescue.  So our hero, George Bush will do his tarzan routine and rescue the industry for a month.  He will supply the necessary funds to keep these guys alive until Feb or March and then let Obama do his thing.


Bloomberg has just learned that the Fed will not disclose recipients of the 2 trillion in Lending over the past year.  Here is the link;


Fed Refuses to Disclose Recipients of $2 Trillion in Lending Dec. 12 (Bloomberg)

The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

The Fed responded Dec. 8, saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information. The institution confirmed that a records search found 231 pages of documents pertaining to some of the requests….


As per the silver comex, I have been witnessing massive amounts of silver leaving the comex with nary an oz coming in.  The total standing is around 31 million oz for December and a further 5 million oz for the non delivery month of Jan.


In gold 1.6 milllion oz are standing and only 1.24 million oz have been hit.


And now for economic news:


First retail sales:


US retail sales drop in Nov for 5th straight month

WASHINGTON, Dec 12 (Reuters) - Sales at U.S. retailers posted a fifth straight drop in November as gasoline sales took a record tumble, according to government data on Friday that showed consumers still shopping despite the recession.

The Commerce Department said total retail sales fell 1.8 percent to a seasonally adjusted $355.66 billion last month following a revised 2.9 percent plunge in October. Excluding motor vehicles and parts, sales were down 1.6 percent in November after a revised 2.4 percent October fall.

The November sales decline was slightly less than the drops of 1.9 percent for total sales and 1.8 percent for sales excluding motor vehicles forecast by Wall Street economists
surveyed by Reuters. Sales of furniture, electronics and clothing were up last month after decreasing in October.

Gasoline sales plummeted a record 14.7 percent after falling 12.9 percent in October. Prices at the pump have fallen significantly and that is reflected in the retail sales report, which compiles total sales by gasoline stations.

The economy continues on its spiralling downfall.  The consumer is 70% of GDP.



The consumer is getting a little lift from the lowering of gasoline prices.  The University of Michigan consumer survey rose to 59.1 from 55.3



US consumers' mood improves on massive price drops

NEW YORK, Dec 12 (Reuters) - U.S. consumer sentiment improved this month helped by falling gasoline prices, retail discounts and "tumbling" inflation expectations, but pessimism over the future tempered their enthusiasm, a survey showed on Friday.

The Reuters/University of Michigan Surveys of Consumers said its index of confidence for December rose to 59.1 from November's 55.3, aided by the fall in one-year inflation expectations to their lowest in five years.

That was the highest since September and contrary to economists' expectations of a fall to 54.8, according to the median of forecasts in a Reuters poll. Their projections ranged from 50.0 to 58.0.

Despite the improvement, sentiment remains depressed by historical standards. The University of Michigan confidence index dates back to 1952 and is still mired near the record low of 51.7 hit in May 1980….


This is not very good: It looks like China is selling all its fannie and Freddie GSE paper. The net loss in purchases for the week totalled 2.56 billion.  What is important to note is that nobody is purchasing Fannie and Freddie bonds.  They just do not trust government.


Foreign cenbanks dump agencies, hoard Treasuries

NEW YORK, Dec 11 (Reuters) - Foreign central banks extended a wholesale pullout of U.S. agency debt in the latest week, even as they ramped up their purchases of Treasury bonds amid a global credit crisis that has spared few nations.

The Federal Reserve's holdings of agencies held by offshore central banks fell for a 10th straight week despite the central bank's new program to purchase up to $600 billion in securities from government-sponsored enterprises like Fannie Mae .

Agencies held at the Fed now totaled $848.51 billion, down over $17 billion in the last week alone and more than $120 billion in the past 2-1/2 months.

Treasury purchases made up much of the difference however, leaving overall U.S. debt holdings down just $2.56 billion on the week. The foreign institutions bought $15.29 billion in Treasury securities in that same period.

Overseas central banks, particularly those in Asia, have been huge buyers of U.S. debt in recent years, and own over a quarter of marketable Treasuries. China recently overtook Japan as the biggest such buyer, holding $585 billion of Treasuries at last count.


The Bank of America announced massive layoffs yesterday:


BAC Bank of America plans to cut 30-35K positions (14.91

The debt deflation spiral continues as the economy falters.  However the usa is continually printing passive paper money to pay for the trade deficit and losses from the banks.  Yesterday, we learned that the budgetary deficit for November was 168 billion dollars well on target for a 2 trillion deficit.

We also learned that 2 trillion dollars of new money must be raised through bond sales.  Since China and other nations are refusing to buy usa bonds, the only way the usa is going to fund these bond sales is through the printing of money.


We are heading for a hyperinflationary depression.


Speak to you on Monday







Thursday, December 11, 2008

Dec 11.09 commentary.


Good evening Ladies and Gentlemen:


Gold closed up by 16.70 to 822.90.  Silver rose another  22 cents to 10.39.


Interestingly enough both OI’s rose yesterday with the big gain in both metals.  Gold’s OI rose by 5500 contracts to 266000. Silver’s Oi rose by  636 contracts to 84000.


Since JPMorgan is the lone supplier of these contracts, you can bet that other smaller banks and speculators are taking on the cartel.  They know that physical metals have been depleted around the world.  Backwardation is getting a little more pronounced in the silver market.  The gold comex is neither in backwardation or contango.  The prices are basically constant throughout the first year.


Today Libor dropped to 1.99% as credit is thawing fractionally.  However lease rates also fell a bit today so the front month of both gold and silver are higher than future months.


Today, the dollar fell by 1.67 on the usa index which is a huge fall.  The index closed at 84.37.  The Dow tanked by 196 points and the Nasdaq by 58.00


It looks grim that the Republicans are going to bail out the auto industry.  This could spell potential problems for the credit default swaps and also cause massive unemployment.


This news caused the market to tank:


Weekly jobless claims jump to 26-year high

WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless benefits surged to a 26-year high last week, Labor Department data showed on Thursday, as a deepening recession forced employers to cut back on hirings.

Initial claims for state unemployment insurance benefits jumped by 58,000, the biggest increase since September 2005, to a seasonally adjusted 573,000 in the week ended December 6 from an upwardly revised 515,000 the previous week. That was the highest print since November 1982, when 612,000 workers submitted new claims for unemployment benefits.

A Labor Department official said there were no special factors influencing the report. Analysts polled by Reuters had forecast 525,000 new claims versus a previously reported figure of 509,000 the week before.

The four-week moving average of new jobless claims, a better gauge of underlying labor trends because it smoothes out week-to-week volatility, rose to 540,500 from 526,250 the prior week, the highest since December 18, 1982 when a reading of 554,500 was recorded.

Continuing claims jumped to 4.43 million in the week ended November 29, also a 26-year high, from 4.09 million the previous week. The 338,000 increase in continuing claims matched the gain recorded in the week ended November 30, 1974.


The labour force continues to shrink as the economy grinds to a halt.


At 8:30 they released the trade figures and lo and behold the trade deficit remained very high at negative 58 billion despite the lousy economy. The reason:  poor exports to go along with the poor importing of goods.  Here is the link:

US trade gap widens, imports from China set record

WASHINGTON, Dec 11 (Reuters) - The U.S. trade deficit widened unexpectedly in October as imports from China rose to a new record and oil imports rebounded as prices fell by a record amount, a Commerce Department report showed on Thursday.

The trade gap grew 1.1 percent to $57.2 billion, even though imports and exports both fell for the third consecutive
month in the face of slumping world demand. Wall Street economists had expected the trade gap to narrow in October to $53.5 billion.

Even as overall imports fell, imports from China increased 2.8 percent to $34.0 billion - a statistic likely to fuel U.S. criticism that China's yuan remains undervalued against the dollar. The U.S. trade gap with China also set a record at $28.0 billion.


This was the most startling news of the day:  The usa is in need of significant debt sales for 2009, to the tune of 1.5 to 2 trillion of new bonds.  Here is the link:

This news came out late yesterday and has received little to no coverage…

16:19 Treasury's Ramanathan says Treasury prepares for "significant" debt sales, cites $1.5-2.0T in '09 borrowing needs - Bloomberg
Headlines only. Says debt sales may occur in "short period of time" and that a new 7-year note and reopened 30-year have been suggested.
* * * * * end.

And then this article:

U.S. Treasury says may need 'novel' debt issuances

WASHINGTON, Dec 10 (Reuters) - The U.S. Treasury Department said on Wednesday it might need to employ new cash management tools if the government's borrowing needs surpass the upper end of expectations next year.

"Given the broad range of deficit estimates, Treasury needs to be prepared to meet additional financial needs if necessary," Karthik Ramanathan, acting U.S. assistant secretary for financial markets, said in remarks prepared for delivery to an investor conference in New York. "This challenge may require novel approaches to debt management."

The Treasury should be able to meet borrowing needs of up to $1.5 trillion for fiscal year 2009 with traditional approaches, he said, but might need new tools if its needs exceed the upper limits of estimates.


And then this:

Rising Supply

Rising supply of government debt to pay for the bailout of the economy and financial system has done little to damp demand. Treasury Assistant Secretary Karthik Ramanathan said in a speech yesterday in New York that the U.S. may introduce new financing methods to meet borrowing needs of $1.5 trillion to $2 trillion in the financial year that ends in September.

While supply has increased, rates on three-month bills fell 2.89 percentage points in the last year to 0.01 percent today, after trading as low as negative 0.05 percent on Dec. 9. The rate on four-week bills plummeted from a peak of 5.175 percent on Jan. 29, 2007. The three-month bill yield was unchanged today.

An investor who bought $1 million in three-month bills at the closing rate of negative 0.01 percent on Dec. 9 would realize a loss of $25.56 when the securities mature. Bills are sold at a discount and appreciate to par at maturity.

Even at the low yields, the government received bids for four times the amount of four-week bills it auctioned this week, according to the Treasury….

David Rosenberg, the chief North American economist at New York-based Merrill Lynch, said last week that demand for Treasuries had reached the "bubble" phase like in technology stocks in 2000 and real estate six years later….

"At some point we are going to get some signal, some indication that this massive policy response is getting some traction," said Mitchell Stapley, who oversees $22 billion as chief fixed-income officer for Grand Rapids, Michigan-based Fifth Third Asset Management.

"The flight out of Treasuries is something that will be breathtaking."


The Chinese are also cashing in their bonds to build their infrastructure.  They are liquidating 600 billion usa dollars worth of bond to finance the move.  Who on earth is going to buy these bonds? The answer is a massive printing of paper bills to buy the bonds.

US confidence level is at an all time low:

U.S. consumer confidence hovers near six-year low, according to RBC Cash Index

Expectations for the Future Return to Negative Territory

NEW YORK, Dec. 11 /PRNewswire-FirstCall/ - Consumer sentiment plunged to a
near all-time low as Americans continued to be bombarded with bleak economic
news, according to the most recent results of the RBC CASH (Consumer Attitudes
and Spending by Household) Index. The survey found that, while consumer
attitudes regarding investing show signs of stabilizing, Americans' confidence
in their future personal financial conditions, current conditions and the jobs
market continue to erode. As a result, the overall RBC CASH Index stands at
15.3 for December, 19.4 points below November's 34.7 level, and nearly in line
with the all-time low of 14.6 reached in July 2008…


The low treasury bill yields are creating havoc to the repo market and the money markets:


Here is a big paper by Pritchard Evans:

Yesterday’s missive noted that zero and even negative T-Bill rates are causing turmoil in the repo market, which is the lifeblood of the financial system. Other pundits are recognizing this problem.

Reuters: U.S. $7 trillion repo market frozen, rates near zero: traders Huge pressure from the global credit crisis on banks and fund managers to stock up on less risky assets is growing with book-balancing needs ahead of year end.

Ambrose Evans-Pritchard: The rush for the safety of US Treasury debt is playing havoc with America's $7 trillion "repo" market used to manage liquidity…However, there are some signs that extreme monetary stimulus by the US Federal Reserve and other banks is starting to have unintended consequences. The Bank of Japan is reluctant to cut its rates to zero again because of the damage this causes to the money markets, which serve as a key lubricant of the credit system. The US is now starting to face the same dilemma.


Right now we are witnessing short term treasuries yielding zero or slightly negative.  The big knock on gold is that it does not earn an interest rate.   Now what would you rather have:  treasuries yielding zero or  physical gold with the chance of huge gains.

I’ll put my money on gold and silver.


Speak to you on Saturday








Wednesday, December 10, 2008

Dec 10.08 commentary.


Good evening Ladies and Gentlemen:


Gold closed up by  35.00 to 808.50.  Silver rose 37 cents to 10.17.


There are many important developments happening so lets start.


First of all, the 90 day treasury rate is now negative.  Yes that is correct it is below zero.  The 30 day treasury is zero.

In order for you to invest in 90 day treasuries you must give the government money in order for them to borrow from you.

Sounds like a good deal to me!!.


If you did not believe me, I have highlighted the passage for you:


Treasury Bills Trade at Negative Rates as Haven Demand Surges

Dec. 9 (Bloomberg) -- Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001….
.  end

What is even more alarming today:  the Fed is thinking that it might want to issue its own bonds.   Here is the passage:


0:23 Fed considers issuing own debt for first time - WSJ
People familiar with the matter say Federal Reserve officials have approached Congress about the idea as they look for new financial tools in the face of a balance sheet that has more than doubled since August. The long-term consequences of flooding the financial system with money, the Fed's most recent tool, could be undesirable inflation, and in the short term, the flooding makes it hard to keep interest rates at the target level. A major barrier the debt idea needs to overcome is the fact that the Federal Reserve Act doesn't explicitly permit the Fed to issue notes beyond currency.
Reference Link (subscription required)  end


I was speaking with Reg Howe tonight and we talked about how the Fed is sending out feelers that they might want to revalue gold instead of having it at the official price of 42.20.  This might help alleviate problems with the Fed balance sheet. end
* * * * * 


It looks like AIG is in more hot water.  There are rumours of a 10 billion dollar hit and the Government is not going to give them any money for this folly.  Here is the passage:


20:51 AIG AIG facing $10B in losses on trades that have gone bad - WSJ (1.93)
The Journal cites people familiar with the matter who say that AIG owes Wall Street's biggest firm roughly $10B for speculative trades that have gone bad. The paper adds that the losses are particularly concerning given that the they are not covered under the government's $150B rescue package for the insurer. According to the article, the IOUs stem from market bets on the performance of bundles of derivatives linked to subprime residential mortgages, commercial real estate bonds and other types of debt. The Journal points out that there are no actual securities backing these speculative trades.
Reference Link (subscription required

And then this article:


AIG's black hole - this is your tax dollars at work

A Clear and Present Danger

AIG is now proving out to be the financial black hole I said it would be when I looked at its SEC-filed documents back in September. Those were a complete disaster, so who knows what the real inside books look like. We know that the Fed/Treasury combined has invested a total of $153 billion in Bernanke printing press money to keep AIG from completely collapsing. Where has this money gone? We don't know exactly, but we do know that $20 billion of it was used to monetize Goldman Sachs' credit default counterparty risk (anyone troubled by the fact that taxpayer representative Hank Paulson is an ex-Goldman CEO and current Goldman CEO Lloyd Blankfein was the only non-Govt/Fed person at the meeting which approved the AIG bailout?). We also know that at least $500 million has been spent on executive compensation. This is YOUR tax money at work:

Here's another $10 billion in failed derivative trades:

American International Group Inc. owes Wall Street's biggest firms about $10 billion for speculative trades that have soured .. end


England is in a mess.  This is why Helicopter Ben is flying over to England tonight.


Helicopter money is on the way in Britain

Submitted by cpowell on 08:22AM ET Wednesday, December 10, 2008. Section: Daily Dispatches

UK May Expand Toolkit to Halt Recession Slide

By Gonzalo Vina
Bloomberg News
Wednesday, December 10, 2008

LONDON -- The U.K. government and the Bank of England are considering plans to pump billions of pounds into the economy as the bank rescue package and the lowest interest rates since 1951 fail to halt a slide into recession.

The Bank of England and the Treasury are looking at a range of options, including pumping money into the economy by bolstering bank reserves, according to a spokesman at the Treasury. The strategy, known as "quantitative easing," was last used by Japan at the start of the decade…  end

As many of you know, we have filed a complaint with the CFTC.  Here is a letter sent to the head of the CFTC  mocking these guys.

JPMorgan has over 98% of the commercial short position in silver and these guys just sit there.

Here is the passage:  (the letter was written by Adrian Douglas)


To Bart Chilton of the CFTC…

Mr Chilton,
The manipulation of the silver (and gold) markets are becoming so ridiculous that the CFTC must now compete with Monty Python’s Flying Circus for the most original zany humor


"Three banks or less are responsible for 67 percent of the commercial short position in gold, while one or two banks are responsible for 99 percent of the commercial short position in silver"


This information is derived from your own CFTC report. I have gleaned from our previous e-mail exchanges that you are most likely an upstanding individual with integrity but you seem to be running the "compliance department" of a Mafia organization.

The CFTC sending out form letters asking various members of the investing community for information about manipulation is analogous to men in orange jump suits with leg-irons running around asking if anyone has seen any escaped criminals! All the evidence of manipulation is in your own CFTC report. It doesn’t matter if the one or two banks holding 99% of the commercial net short position have the silver or not. This concentration is manipulative and allows such holders to dictate market prices and this point has already been demonstrated in spades by the price behavior .

I think all that is left for you to do is to resign and get this story of manipulation and corruption in to the public domain via the Press as was the case of the whistleblower in the Enron case. It appears there is nothing you can do from within the CFTC, unless, of course, you think such positions are in anyway defensible and enjoy being part of the Circus!
Adrian Douglas

This is not good for our deficit.  The Budgetary deficit  for Nov. was reported at 164.4 billion.  The anticipation was for 171 billion shortfall.

Here is the passage.

T14:00 Nov Budget deficit reported $164.4B vs. consensus $171.0B
Oct deficit was $98.2B.


If they keep this up, we will have a 2 trillion dollar budgetary deficit as I promised you.


Our good friend Dennis Gartman covered his short position in a hurry this morning.  This well informed individual has received information not to his liking.  Sure enough gold rose today up by 35.00.


There is now no question that the zero interest rate on the 90 day notes, the backwardation in silver and partial backwardation in gold is having a huge effect on our bankers.  We are seeing a race to zero interest rates around the world as they desperately try and ward off deflation.


I am going to throw this one out to you:  the  credit default swaps on the usa dollar is rising and it is now 68 basis points or someone must pay $68000 per year for 5 years to insure$ 5.00 million usa against default.

My question is this:  how on earth will anyone collect.  If the usa defaults then everything goes to zero.  So why pay $68,000 per year for the privilege?


Speakl to you tomorrow












Tuesday, December 9, 2008

dec 9.08 commentary.


Good evening Ladies and Gentlemen:


Gold closed up by 5.00 to  773.00.  Silver fell by 15 cents to 9.81.


The open interest on gold comex  rose a bit yesterday up by 400 contracts to 262800.  Silver’s Oi also rose  by a scant 147 contracts to 83000.


Today, libor rates in usa funds fell slightly to 2.16%.  However lease rates on silver 3 months out rose to 2.26%.  On seeing these figures, I wanted to see if silver went into backwardation.  Lo and behold it did.  Silver closed at spot prices higher than in the future months.


For gold, we had a slight contango.


At the silver and gold pits, there were no changes in deliveries.


The big news came from the banks participation report.  In silver, two banks represent over 98% of the commercial short position.

This is flagrantly against comex policy and shows manipulation by these two banks.  I will highlight the important passages for you:

this is the reason for the criminal probe against silver by the CFTC law enforcement people.).  This is from Gene Arensberg:

"On the fly" Gold And Silver COT Information


The Commodities Futures Trading Commission (CFTC) release of its Bank Participation in Futures Markets on the first reporting week of the month. The figures for December are out.

The concentration in gold is ridiculous, but the horrendous acting silver market is beyond scandalous. From Gene A’s report:

For silver, it’s even more startling. On December 2, as silver closed at $9.57, exactly 2 U.S. banks held a net short positioning of 24,555 contracts. The CFTC reports that as of the same date all traders classed as commercial held a net short positioning of 24,894 contracts. So, the 2 U.S. banks, with one particular Fed member bank probably holding almost all of it, held a sickening 98.64% of all the collective commercial net short positioning on the COMEX, division of NYMEX in New York.

Here’s what the miscreant banks’ positioning looks like on a graph:

Source CFTC for Bank Participation, Cash Market for silver.

Exactly two U.S. banks have practically all the COMEX commercial net short positioning on silver. For a little context, 24,555 net short contracts means that the two banks held net short positions on December 2 for 122,775,000 ounces of silver with silver at $9.57. The COMEX said on December 4, that there were 80,239,857 ounces total in the "Registered" category, so these 2 malefactor banks held net short positioning equal to about 153% of the amount of deliverable silver in ALL the COMEX members’ accounts…


We already have feedback from the CFTC that one of those positions was a result of a takeover, which clearly was JP Morgan Chase taking on the SHORT position of Bear Stearns. What is the point of having anti-trust laws if this is allowed to stand, especially when the physical retail market is so tight, and coin premiums are at historic high levels? If this sort of information doesn’t prove GATA’s point, nothing ever will. This is no hedging operation, it is the United States Government suppressing the price of silver in unlawful fashion to suit its own agenda.

And that is the problem with Bart Chilton’s investigation of the silver market. He is investigating his own government. How does he tell them to bugger off? Seems to me the only way to carry on here is to go to the Justice Department. What else does he have to investigate? It is all there in their own government stats.

It is beyond bizarre. Hardly any dealers are short silver because they know of the real shortage, so the US Government has become THE SHORT. What kind of free market is that?

Bart Chilton has been very cordial in answering numerous emails, unlike anyone else in Washington I have come across over the last decade. He has to be commended for that. However, it is time for him to get off the pot and do something. There is nothing else to investigate. He only needs to demand JP Morgan Chase reduce a much too concentrated short position, one which has the silver market dysfunctional.

He ought to do so for his own good and for the good of our financial markets. This sort of chicanery and utter price suppression nonsense will not stand too much longer. It wouldn’t take much to blow up the silver Comex market up. That kind of ramification could lead to very serious financial market consequences, putting the integrity of all our financial exchanges in question. We have enough trouble with our financial markets at the moment. No one needs that.

Mr. Bart Chilton can be reached here:

You will note that the net commercial shorts by one or two banks in silver is about 122,750,000 oz.  The number of contracts short by the commercial entities are 24,555 or approximately 98% of the entire commercial short interest.

On top of this, backwardation is rearing its ugly head at the cartel.  JPMorgan is  probably staring into an abyss.

They are caught red handed!!!


The ECB just announced sales of gold for the week.  They came in at 2 tonnes of gold or 42million euros worth of gold.

Certainly, Euroland is not responsible for gold sales.  Here is the link:


he ECB’s weekly statement of condition indicates that “gold and gold receivables” fell E42Mm last week, which “reflected” sales by two captive CBs. This is 2.08 tonnes at the current book value. Last week two CBs were said to have sold 5.7 tonnes. The ECB echelon of CBs apparently does not care to even approach the 9.6 tonne weekly average notionally possible under WAG2. Perhaps we will see a sale from the ECB itself, which for some reason are announced separately. With a new WAG2 year, this would be possible.

Yesterday’s $17.10 (2.3%) gain for Comex gold saw only 466 lots added to open interest (0.02%, or 1.45 tonnes). Apparently there was almost as much short covering as outright buying. The steadiness of open interest – in the 260,000s all month so far – is becoming notable.

Today’s $4.90 Comex gain incorporated a sell-off at the start and a brief attempt on $780, for an $18.20 range. Estimated volume, however was only 72,555 lots, with a switch effect of 8,836.

Although Comex gold has gained $22 in the past two business days, MarketVane’s Bullish Consensus has only risen three points, to 58%. Novembers 13’s 49% low was the lowest for several years. On the other hand, Mark Hulbert’s survey of gold-timing newsletters is being interpreted negatively by him. See


As for economic news, I highlighted 3 articles for you:

U.S. consumer confidence falls in December - IBD

NEW YORK, Dec 9 (Reuters) - U.S. consumer confidence fell in December, hurt by worry over the condition of the auto industry, news of big job losses and recent confirmation the economy is in recession, a survey released on Tuesday said.

Investor's Business Daily and TechnoMetrica Market Intelligence said their IBD/TIPP Economic Optimism Index fell 5.8 points, or 11.4 percent, to reach 45 in December.

The index is 2.5 points above its 12-month average of 42.5 and just 6.5 points below its all-time average of 51.5.

Index readings above 50 indicate optimism; below 50 point to pessimism.


U.S. Oct pending home sales slip 0.7 percent - NAR

WASHINGTON, Dec 9 (Reuters) - Pending sales of existing U.S. homes fell by a smaller-than-expected margin in October, data showed on Tuesday, raising cautious optimism of some stability in the distressed housing market.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in October, slipped 0.7 percent to 88.9 from an upwardly revised reading of 89.5 in September.

October's reading was 1.0 percent lower than a year earlier. Economists polled by Reuters ahead of the report were expecting pending home sales to drop 3.2 percent. Pending sales declined by a revised 4.3 percent in September.


U.S. economic slowdown seen continuing in 2009-ISM

NEW YORK, Dec 9 (Reuters) - Economic growth in the Untied States will vary by industry and sector in 2009, the nation's purchasing and supply management executives said in their December 2008 semiannual economic forecast released on Tuesday.

The "adverse conditions" experienced in the second half of 2008 are expected to continue in 2009 in manufacturing, the Institute for Supply Management said. The non-manufacturing sector foresees marginal growth during the same period.

The overall forecast "lacks the sense of optimism that purchasing and supply managers have typically expressed about the U.S. economy in their annual forecasts," the organization said.

The manufacturing sector overall is pessimistic about prospects for 2009 with revenues expected to decline in 12 of 18 industries, while the non-manufacturing sector appears more positive about the year ahead with eight out of 18 industries expecting higher-than-average revenues.

Business investment, a major driver of the U.S. economy, is expected to decline, with two sectors seeing a combined 7.6 percent drop in capital spending.



Daan Joubert has released his version on the backwardation issue on gold and silver comex.  It is self explanatory.


I have highlighted the important passage for you:

South Africa’s Daan Joubert and some explanation on backwardization, Antal Fekete's commentary and the latest flap over it…

I earlier had some questions regarding the Fekete essay, in effect saying that he is a bit too theoretical for easy understanding. I'll try to elaborate on the specific point he is making. It all has to do with the concept of backwardation (BW) and when/why it arises. You can simply read my comments and interpretation in isolation or first read the Fekete essay (Dos Passos Table) - or read it after looking through my comments.

In principle, but not in fact, the futures price of a commodity is always greater than the spot or current price.

A futures price relative to the spot price is a function of two main factors: the risk-free interest rate and the duration of the futures contract. These factors combine into a measure that reflect the time value of money in terms of the cost of a transaction to have ownership of the commodity. Ownership can be either immediate - by a purchase at the spot price - or through purchase of a future and then taking delivery at some later time.

Assume that a single grain contract is equal to 100 bushels, with the grain trading at $100 a bushel; margin is $10/bushel and the contract has 1 month to go before delivery can be taken. Assume that the contract is currently also trading at $100 with delivery happening in one month's time.

Someone who needs 100 bushels of that grain 1 month from now has two options - he can buy the 100 bushels on the open market and store the grain for one month. Doing so will require an outlay of $100 to do the purchase (and some storage cost, which we will consider to be negligible.)

Alternatively, he can buy one contract at the current value of $100, with margin of $10 as the outlay. That leaves him $90 of his capital on which to draw interest, One month from now he takes delivery of the 100 bushels, which then costs him $100 ($10 margin and the $90 that has been drawing interest) and this leaves him with a profit equal to the amount of interest he has earned.

It is easy to see that with spot and the one month contract both costing $100 that everyone with any financial sense will buy the contract for $10 down as margin, and earn interest on the additional $90 that would have been needed for the purchase. In order to balance the choice between the commodity and the future, the future would be priced higher simply by demand - and the price premium in principle would be equal to the amount of interest that can be earned on $90/contract.

This reasoning can be extended to saying that the longer the duration of the contract, the higher will be the premium - basically because a longer premium allows a longer time for the difference between the margin and the actual price to draw interest. A future with 3 months to expiry enables the $90 in the above example to be invested for 3 months, earning interest. Purchase of a 6-month contract will deliver interest for 6 months, etc.

Where this sequence for higher prices, starting with spot, is broken, the condition is known as backwardation (BW) While it can occur at any point within the sequence of futures of longer duration, it most often happens between the price and the closest contract - although it can extend to additional contracts, starting with the next nearest expiration.

Fekete writes about gold that went into BW for the first time in history. Why would a commodity go into BW?

If spot is higher than the nearest future - say with one month to go before it expires - it means that people are willing to forgo the potential profit of buying the contract in favour of buying the actual commodity right now. The most obvious example occurs in the case of an industrial commodity.

Say, for example, that a factory uses a good deal of copper in its operation and cannot operate at all without it.

It has enough supply at hand for the next month, but would then have to have a new supply to continue operation.

As in the example above, the owner has two options: purchase the copper and store it or buy a futures contract for one month and take delivery when it expires.

Under normal circumstances the price of the futures contract will be higher than spot, as described above.

Now think a little before reading further - what kind of condition would have to exist for the owner to forgo the interest offered by the futures contract by buying the actual copper at the higher spot price; which by the fact that it is higher means he loses out on a good deal of interest.Keep in mind that the commodity is not needed until the end of the month.

The only logical reason is that if he buys the copper he knows he has it on site; but he believes that he might not be able to get delivery if he went for the contract - and then his factory grinds to a halt. So, giving his knowledge of the very tight conditions in the copper market he has some reason to believe that if he buys the contract, his counter party might not be able to deliver the copper one month form now.

In other words, a commodity goes into BW when users of that commodity believe supply to be so tight that they may not be able to effect delivery when they try to do so. Now for an important point: for BW to persist, all major players in the market has to share that belief. To illustrate:

Assume that copper spot is at $11/lb and the one month contract is at $10/lb - a case of backwardation. Let there be a player that sits on 1000 lbs of copper he does not himself need immediately, but will need in one month's time. If he is certain he can replace the copper after one month in the commodities exchange, he can do the following: sell the copper in the sport market for $11/lb and receive $11 000. At 10% margin he uses $1000 of that money to buy a futures contract that will deliver the same amount of copper at $10/lb. He invests the remaining $10 000 and earns interest on it for one month and then uses $9000 of the capital to pay for his 1000 lbs of copper when he takes delivery. he has the $1000 profit on the transaction as well as the interest he has earned on the $10 000.

So if BW persists, it means there is nobody out there who
a) has copper he does not need to use for some period of time and
b) believes that if he did sell the copper he can replace it by taking delivery on a futures contract.

To sum up - if BW exists and persists, we know that the above applies to all players in the market who do own that commodity and who do not intend to use it for some length of time. BW is a sign of a very tight market in that commodity and most probably prospects of it being tight for some time.

But gold is not a consumable commodity, like copper or grain or any other industrial commodity.

Only jewelers 'use up' a significant amount of gold so that they have to go into the spot market in order to keep operations going when he fears that delivery may not take place if he went the futures route. But gold used for jewelry is only a small amount of the gold that is traded - the London Bullion Market have claimed that their daily volume is many hundreds of tons; often a 1000 tons - therefore many millions of times more than the daily conversion of gold into jewelry. So why should the jewelers want to buy gold right now at a price substantially higher than that one month from now?

Gold of course has another role - it is a store of value. A hedge against uncertainty and risk.

If people who invest in gold for these reasons are willing to pay more immediately than to obtain gold by means of a delivery on the futures exchange,it means two things:

a) There are enough people so concerned about non-delivery that they will pay a large premium to get their hands on gold right now
b) There are no large holders of gold who have sufficient faith in the futures exchange to exploit the BW, as described above.

That reveals enough as to why gold has gone into backwardation, albeit perhaps only briefly.Fekete wrote about the BW on December 2 and 3. At are the December 5 closing futures prices for months Dec 2008 - Aug 2009

Spot is $754.30 (per Kitco) and this is higher than the Dec, Jan, Feb and April futures, which range from $750.50 to $753.70, (No March contract)so backwardation is still in place, and out to the April contract - getting very substantial now. The June contract is $755.20.

The longer this persists - and the farther it goes out into the future - the more damning it is in terms of there being no holder of gold who is willing to take the risk of selling into the spot market and then replacing the gold through a futures contract. That says more than enough about the tightness of the market and, by implication, the risk that sellers of gold contracts will go into default when they are asked to deliver on the futures they had sold.

It is possible that the situation can reverse - that someone can obtain enough gold from somewhere to sell into the spot market WITH strong and certain belief that when the time comes to take delivery on the contracts that were purchased to replenish the gold he has sold, his contracts will be honoured. The possibility of that happening seems remote, but not impossible.

2008 has just over three weeks to go and can still become most interesting!!

If BW persists, 2009 promises to be a golden year.

Daan is correct. Should we get a more serious and lasting gold/silver backwardiztion, it will be a sign the prices of gold and silver will go bananas. Nothing could be more bullish, especially in light of all that has been brought to your attention the past few months.

For a couple of weeks now I have noted the nearby tightness, even backwardization, at times, but have seen none of it in the back months. Perhaps, this is the beginning and how a full blown backwardization will occur. I sure hope that is the case.  end

Tonight, there is talk that Italy is behind the talks to sell 2000 tonnes of gold Yesterday we heard about the IMF and today Italy.


For our vantage point, Italy has already leased all of its gold.  As for the IMF, none of their gold is allocated .  Even if they had allocated gold, congress needs to approve of the IMF sale and with the world in turmoil, I doubt that congress would approve the sale.


In summation, it looks to us that the only suppliers of precious metals silver and gold is JPMorgan (at the comex). All other participants have left.  The kitchen is getting a little to hot for them.

They also see first hand,backwardation and they know that spells trouble.  If the comex survives December, then February will kill off the cartel in gold and March, it will be silver.  It is possible for January  as many will roll forward their March contracts for fear of not getting metal. They will roll into option related contracts.


Stay tuned to this one!!







Monday, December 8, 2008

Dec 8.08 commentary.


Good evening Ladies and Gentlemen:


I am back from Venice.  There were two very important developments that occurred on Friday.  The first was the announcement of the huge reduction in the work force.  The BLS reported a loss of 533000 workers for November.  They also reported a further loss of 199000 for the previous two months.


They also used a little plug in the Birth and Death Model. The plug was an additional gain in employment of 30,000 in the construction industry. 


The second big announcement came from CaliforniaArnold issued a press release stating that they will be out of money by March.  He is advocating printing IOU`s  to be used instead of money.  He will pay interest on the  IOU`s.  I am not sure this is legal as only the Fed can print money.  However if he pays interest on the note then it might be legal.


As for today, the price of gold climbed by $13.00 to 768.00.  Silver rose by 54 cents to 9.94.


The open interest on gold continues to contract.  The latest number for OI is 262000 which is a decade old record.  Silver`s OI remains at around 83000.


There is much talk of gold and silver going into backwardation.  We are seeing backwardation in the first months but get a regular contango in later future months.


I will try and explain how contango vs backwardation works.


Central banks lend gold or silver to a bullion bank.  This is called leasing or a forward rate.  The bullion bank then lends out the silver or gold and they do it at the libor rate.


Generally the libor rate exceeds the leasing rate so we get a positive forward price for the precious metal.  Suppose the lease rate is l% and libor is 2.2%.  Then we have a positive contango of 1.2% per annum.  If gold is 700.00 then the forward price in one year is 14.00 per year or 14 dollars divided by 12.00 or $1.10 per month.


Now lets suppose that the lease rate is 2.4% and libor is 2.2%.  Then the forward price of the precious metal is lower than the spot price.  In the above example the difference is .2% x 700.00 or 1.40 per year or 11 cents per month.  This is backwardation.


Gold and silver traded in backwardation for the first two months only for the December contract and then we had contago for all other future months.


My mentor Reg Howe stated to me on many occasions that I will never see backwardation in gold, the world`s ultimate money.  He stated that it is impossible to have real money worth less in the future than today.


There are two articles worth mentioning about gold backwardation, the first article published by Dr Fekete  on December 5th on gold`s backwardation in the first 5 days of trading in gold.  The second is an article written by Ron Kirby today.  The first two articles are at  The other is in the Lemetropole café tonight.


A few have commented on Mike Bolser and his talk about the sale of 3000 tonnes of IMF gold.

I doubt this very much.  The IMF does not have gold allocated and besides the usa congress must vote to allow this to happen which will make this sale very unlikely on Dec 10.08.  


This is scary:


Bank of England mulls "nuclear option" of cash injection

By Edmund Conway
The Telegraph, London
Friday, December 5, 2008

The Bank of England is working on radical plans to inject cash directly into the economy -- the nuclear option to be used only when interest rates approach zero.

In what would be a major departure for British monetary policy, the Bank is considering pressing the button on printing presses by engaging in a so-called policy of quantitative easing. It emerged after the Monetary Policy Committee cut borrowing costs by 1 percent to just 2 percent -- the lowest level since 1951.

In the statement published alongside its decision, the Bank warned that "it was unlikely that a normal volume of [bank] lending would be restored without further measures."

Ambrose Pritchard Evans has published a great article on deflation.  His thoughts are close to mine.

Here are the highlights:


Deflation virus is moving the policy test beyond the 1930s extremes

Debt deflation is tightening its grip over the entire global system. Interest rates are creeping towards zero in Japan, America, and now across most of Europe.

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 10:13PM GMT 06 Dec 2008

Comments 93 | Comment on this article

We are beyond the extremes of the 1930s. The frontiers of monetary policy are being pushed to limits that may now test viability of paper currencies and modern central banking.

You cannot drop below zero. So what next if the credit markets refuse to thaw? Yes, Japan visited and survived this policy Hell during its lost decade, but that was a local affair in an otherwise booming global economy. It tells us nothing….


Over in the silver pits, some strange situations


A total of 29 million oz of silver have already been hit.

A total of 6.00 million oz of silver still remain to be hit.

A total of 1.0 million oz  of silver transferred to a non delivery month of January.

Probably someone was paid not to take delivery.  


There have been no new supplies of silver added to the comex.


In gold 1.2 million oz of gold have been hit.  There remains another 200,000 oz of gold that remain to be hit.

There have been no new supplies added to the comex to fulfil their contracts.  This is very strange indeed.

Speak to you tomorrow



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