Saturday, December 20, 2008

Commentary Dec 20.08

Good morning Ladies and Gentlemen:


Gold closed down by 23.20 to 836.70,  Silver fell by 27 cents to 10.61.  Yesterday was options expiry, so we expect the cartel to raid these metals to prevent the exercising of options.


They could not fool the gold shares  as the xau rose despite gold’s drubbing. The open interest on gold rose by 1122 contracts to 294600.  Silver’s OI fell slightly by 266 contracts to 86000.


Over in the comex silver pits, the comex released two days figures and we witnessed approximately 700,000 oz of silver hit.  The new total stands at 30.3 million oz to which you must add 1.0 million oz from Nov.’s options exercised.  There are another 130 contracts or 600,000 oz left to be hit.  As well we have over 550 contracts(  2.8 million oz) exercised for the Jan non delivery month. In total, then we have 30.3 + 1.0  + .6  + 2.8  =   34.7 million oz.  There are 77 million registered silver oz.


The comex has not seen one oz of either gold or silver enter their premises.  We will have to wait until Dec 31.08 to see if there is any fireworks.


The COT report released after the market closed showed commercials feeding the comex paper in silver and gold.  The only supplier is JPMorgan.


Libor fell to 1.50 from 1.53%.  Lease rates also fell with the 3 month gold lease below 1.50%.  The silver lease rate is just above the 1.5% so silver remains in slight backwardation. The banks are still loathe to lend.


In economic news, you all saw that Congress is going to bail out temporarily the auto industry.  They are going to loan these guys 14 billion dollars to help them until Feb. The Dow initially rose on the news but in the end the Dow fell by 26 points. Crude Oil fell at one point to 32.00 but recovered late in the day to 34.50.  Strangely, Brent sea oil which is the poorer cousin of the light sweet crude, remained constant at 44.00 per barrel.  I have never seen a huge disparity of 10,00.  Light sweet oil should be trading at a premium to Brent.


The big news of the day was Goldman Sachs going positive on gold at the Tocom.  Here is the link and I will explain its significance:





In the December 18 session on the TOCOM Goldman Sachs COVERED an absolutely gob-smacking 1,307 gold short contracts which reduces their short position to just 495 contracts and leaves their long position unchanged at 1,337 contracts and makes them NET LONG – REPEAT, NET LONG 842 contracts. This is an absolutely stunning development! This is the largest net long position they have held ever since I have been tracking the TOCOM data which is almost 3 years. Considering Goldman’s role in the Cartel and links to the Treasury this is of earth shattering significance. It should also be noted that for ANY trader to be buying 1.3 tonnes of gold in a single day it deserves attention, when it is Goldman Sachs it has special significance.
There are more and more signs that the gold market is about to make a very big upwards move.


Goldman sachs entered Tocom trading 3 years ago.  At one point, they were 55,000 contracts net short.  In Toyko you must declare your long and short positions, unlike that at the comex. Everything over there  is  transparent.


Goldman has been retreating from their high shorts and slowly removing the short end of the stick and going long on gold.  Adrian has charted their progress and predicted that by Nov 25.08 they would be net long.  He was out by a month.

However, it is clear, that Goldman did not want to be short gold when Obama took office. Goldman is also very aware of the comex inventory in both silver and gold and they are a very strong cartel member if not the quarterback.


There was major behind the scenes rumblings about derivative losses at JPMorgan. 

JPMorgan  is the huge garbage can that have been collecting all the derivative losses at Washington Mutual, Wachovia, Bearn Stearns, and Lehman Brothers.


In July we saw commodity prices zoom out of control.  Now we see commodity prices plummet and this has unintended consequences.  Commodity countries are seeing their exports fizzle to zero and this has caused their external deficits to climb.  We are now seeing major countries in severe financial problems led by the Ukraine, which just received 16 billion dollar in aid.  The following countries  are also  in severe difficulty:


1.     Italy

2.     Spain

3.     Portugal

4.     Greece

5.     Turkey

6.     Belarus

All of the above have huge current account deficits and they are short of foreign capital.  As you might expect, these guys also have the largest credit default swaps written on them.  The largest underwriters of these default swaps are AIG ( now assumed by JPMorgan), Citibank and the leader of them all, JPMorgan.


The default by Ecuador will fall directly on JPMorgan.

If the comex defaults on the 31st of December, JPMorgan will be the defaulter as they hold the largest commercial short position.

We are in knowledge that this is going on behind the scenes.


Many have asked me to explain whether we are in a recession or depression. Are we deflating or are we inflating?  Lets get some definitions out there and I will try and explain the difference to you.


Inflation is simply the increase in the money supply chasing too few goods.  Price rises generally follow.

Deflation is simply the decrease in money supply (credit) chasing many goods.  Prices generally fall.

A recession is defined as two consecutive quarters of no growth or negative growth.  Generally we see a fall in GDP of 1% per quarter.


If the contraction from top to bottom is greater than 10%, then we refer to this as a depression.


In a deflation, governments have no control over the economy and therefore all politicians will try their utmost to protect the economy from heading into this dangerous economic spiral.


Today, we are witnessing massive credit contraction (deflation) caused by the banks losing 4-6 trillion dollars due to the subprime, alt a and other credit bombs that have melted.


The fed has been trying to reinflate the economy by pouring liquidity (dollars) into the system.  However, defaults are occurring faster than the machines are printing the dollars.


If JPMorgan defaults and as such all their derivatives will blow up.  The bill has to be paid, and it will be in the trillions.

If the government decides to print all these trillions of dollars of debt defaults, then we will have massive hyperinflation.  The economy will still be listless because of all the banking failures.

We would then witness a stagnant economy with rising prices. The dollar collapses. I call this a hyperinflationary depression.


If the government decides to default on its debt obligations, then foreigners take over asssets and you have a depression.  The dollar collapses but will not fall as bad as in a hyperinflationary scene. We remain mired in a depression like Japan over the next 15 years.


Yesterday,  Paulson announced that he needs the second half of the TARP money.  This must be classic chutzpah as many Senators and Congressman are furious with Paulson over his change in destination of TARP money.  Not a cent went to citizens in need of mortgage money.  All of the dollars went to the banks and 88% of the money went to pay for bonuses to the clown heads of the banks.


Barney Frank issued a statement yesterday to that effect.  Barney Frank receives the most dollar contributions from the banking sector than any member of the senate or house.

It is interesting that these guys are still trying to pry money despite Bloomberg’s freedom of information on where the TARP money is going.  The Fed does not want to release this data.


I leave you with two important passages yesterday.  They are self explanatory:


The first from Richard Russell:


Richard Russell sees it this way tonight…

Winding it all up -- The Bernanke Fed has shot its load, Fed funds are down to zero, trillions of dollars have been injected into the economy, bail-outs in all directions. The critical question -- Can Bernanke and Paulson halt deflation and turn it into something resembling inflation? IF they succeed, the we will owe them "the world." If they fail darkness will cover the land, and we may be dealing with Great Depression II. In the meantime, we eagerly search for signs pointing of their success: rising gold, declining bonds, a stable US dollar, and a slowly rising stock market.

The second from Jim Rogers:

Rogers: The Elite Are Turning A Recession Into A Depression

Veteran investor says Obama’s agenda will only exacerbate the problem

Paul Joseph Watson
Friday, December 19, 2008

Veteran investor Jim Rogers warns that the policies of central banks and politicians are turning what would have been a recession into a new great depression, and that Barack Obama’s taxation agenda will only make the problem much worse.

Speaking to Bloomberg News, Rogers said that the crisis would at least be the worst since the second world war and that “it could well be” as bad as the great depression.

“1929 was the stock market bubble which popped, we were going into a recession and then the politicians around the world starting making horrendous mistakes which turned it into a depression, it would have been just a normal recession otherwise but the American politicians and the European politicians - everyone got in on the act and that seems to be happening this time too,” said Rogers.

Rogers labeled it “unfathomable” what central banks were doing and totally at odds with the lessons of history, adding that President elect Barack Obama’s intention to impose protectionism and taxation of capital would fuel a depression.

“If that happens, it’s all over,” warned Rogers, adding that the same thing will happen to the U.S. as happened to Britain between 1918 and 1939, which went from being the richest and most powerful country in the world to being a shambles. China would replace America as the great superpower in the 21st century, said Rogers.

Rogers explained that the only safe haven during such a period would be commodities and precious metals like gold, which always perform well during times of extreme upheaval. Rogers said he had bought a significant amount of gold at the start of its bull run in 2002 and that he hadn’t sold any of it.The veteran investor stated that shortages would translate into a strong comeback for oil, which slipped down to $36 dollars a barrel yesterday from a peak of over $145 dollars a barrel in July.


Have a great weekend.




























Thursday, December 18, 2008

Dec 18.08 commentary.


Good evening Ladies and Gentlemen:


Tonight will be short as there was no real news to talk about.

Gold was hit down by 8.60 to 859.90.  Silver retreated to 11.08 down by 32 cents.  Tomorrow is options expiry and thus the raid on gold and silver.

The open interest on silver and gold is  fascinating.  In gold, the OI rose by 10,000 and the new OI rests at 292000 as we see a lot of players excited as they see gold continually being removed at the comex.   There was an additional 137 contracts hit on gold and the total gold standing represents 1.4 million oz against a total inventory in the registered column of 2.8 million oz.  Silver saw no new changes except that an additional 60 contracts were purchased for the December contract and also another 80 contracts were exercised for the January contract.


Obama named M. Schapiro to replace Cox.  She will be good.  However he named Gensler, a former Goldman Sachs executive to replace Lukken.   He is a carbon copy of Lukken.


In economic news, we saw oil head southbound closing at around 36.00 as deflation is scaring the living daylights out of everyone.

The Libor rate for the 3 month contract fell to 1.53%.  The lease rates stayed the same, so we moved a touch closer to backwardation.


The ECB made this statement late yesterday:


In Tuesday the ECB weekly statement indicated on captive CB has disposed of E21Mm of gold: 1.04 tonnes. The previous week the drop was 2.08 tonnes. The ECB group does not seem to want to appear involved in gold at present.


The ECB is not interested in selling any gold.


Today, the Dow fell by 219 points.  This was one reason:


The DOW was struggling all day when this news hit the tape:

GE, GE Capital Outlook Changed to Negative by S&P

Dec. 18 (Bloomberg) -- General Electric Co.’s debt ratings outlook and those of its GE Capital finance arm were changed to negative from stable by Standard & Poor’s, reflecting concern earnings could deteriorate further than previously thought.

The AAA ratings on both entities, the highest available, were left intact, Standard & Poor’s said in a statement today. The ratings firm said there is at least a one-in-three possibility of a downgrade in the next two years. GE fell $1.20, or 6.9 percent, to $16.19 at 2:42 p.m. in New York Stock Exchange composite trading.

The second reason for the Dow’s fall was news that Bush favoured a bankruptcy proceeding for GM and Chrysler.

The banks did not like that as they feared  huge losses from the credit default swaps on GM which total in excess of 1 trillion dollars.

The SKF banking index rose to 111.25 from 106.00.  This is the reciprocal of strength for the banks.  A rise shows weakness in the banking sector.

The jobless claims came down a little but they are still huge.  The

 Philadelphia manufacturing sector continues to decline.  We also heard from the Nov. leading indicators and they continue to plummet.

Here are the important passages to read:

U.S. jobless claims fell by 21,000 last week

WASHINGTON, Dec 18 (Reuters) - The number of U.S. workers filing new claims for jobless benefits fell more than expected last week, moderating from a 26-year high touched the previous week, Labor Department data showed on Thursday.

Despite the decline, jobless claims remain exceptionally high, and are more than 200,000 higher than a year ago.

Initial claims for state unemployment insurance benefits fell 21,000, to a seasonally adjusted 554,000 in the week ended Dec. 13 from an upwardly revised 575,000 the previous week. State offices were closed for at least one day near the end of November because of the Thanksgiving holiday, distorting the holiday week and the following week's numbers.

A Labor Department official said there were no special factors influencing the report. Analysts polled by Reuters had forecast 558,000 new claims versus a previously reported figure of 573,000 the week before.

The four-week moving average of new jobless claims, a better gauge of underlying labor trends because it irons out week-to-week volatility, rose to 543,750 from 541,000 the prior week, keeping the average at a 26-year high.

Continuing claims fell to 4.38 million in the week ended Dec. 6 after scaling a 26-year of 4.43 million the previous week.


10:00 Dec Philadelphia Fed reported (32.9) vs. consensus (40.5)
Nov reading was (39.3).
* * * * *

10:00 Nov Leading Indicators reported (0.4%) vs. consensus (0.4%)
Oct reading revised to (0.9%) from (0.8%).
* * * * *

WASHINGTON, Dec 18 (Reuters) - The U.S. Conference Board's index of Leading Economic Indicators fell to its lowest level in more than four-years in November, the research group said on Thursday, underscoring the depth of the economic downturn.

The index fell by 0.4 percent to 99.0, the weakest since February 2004 when a reading of 97.8 was recorded. The index slipped by 0.9 in October to a revised 99.4.

Wall Street analysts had expected the leading index, a gauge of future economic conditions, to fall by 0.5 percent.


Speak to you on Saturday.



Wednesday, December 17, 2008

Dec 17.08 commentary...extremely important:

Good Evening ladies and Gentlemen,


I would like to comment on the silver and gold deliveries and inventory.


As I pointed out to you on previous commentaries, there are approximately 31 million oz of silver standing for delivery.

This is made up of 1.0 million oz of Nov options exercised on Dec 1.08.  There are so far 29,715,000  oz of silver hit as of Dec 17.08.  There is a further 100 contracts or ½ million oz left to be hit.  A further 5 .0 million oz moved from December to January.  In total approx. 36 million oz of silver are affected for December and January.


Please note column 4.  It showed that zero oz was hit on both Dec 16 and 17.  One hundred contracts still remain to be hit.

Note column  5.  The registered (for sale silver) lowered from 77.75 million oz to 68.189 million or a drop of 9.5 million oz.  This silver was removed from registered  (for sale) to eligible  (storage).   Some entity has decided to remove his silver from the “for sale” list.

The world certainly took note of this!




In gold,  we saw another  2500 oz hit.  There are still 850 contracts still to be hit.  Please note that the registered gold (for sale gold) is also declining.  The total gold left in the comex inventory is about 2.8 million oz.  The 1.4 million oz standing for delivery represents almost 50% of total registered gold.  This is very explosive and we may have our comex default.


The silver situation looks more promising than gold.  However everyday  new gold contracts are hit.


As I pointed out to you yesterday, not one new oz of silver or gold have entered the comex and this is extremely strange. For the last 8 months, if 1 million oz of precious metal was hit you could bet that 1 million oz of that metal would enter the comex and then leave. 

This month:  nothing is coming in and everything is leaving!!!!






Gold total rose by 26.80 to 868.50. Silver rose by 73 cents to 11.40.  The open interest on both metals rose marginally despite the huge gains yesterday.  The OI on gold rose by  2600 contracts to 282000.  Silver’s Oi rose by a scant 637 to 87300.  The entire banking sector are leaving the silver and gold arena leaving the supplying to only one bank…JPMOrgan.


This is very important:  The two funds of Central Fund of Canada..the CEF A fund ( silver and gold) and the GTU fund  (only gold) are seeing record premiums.  The premium over NAV is now over 22%.  Here is the link:


I’ve been MARVELING this morning at the action in both CEF and GTU, frankly the best action I’ve ever seen in both of them.

The premiums on both funds have SURGED this morning, CEF to nearly 17% and GTU to a record-high 22%+.

But more importantly, when gold just got hit in the futures market by $10-$15, both funds just sat at their highs of the day and barely budged even a penny. This has NEVER, EVER happened in these two funds, and I mean NEVER.

I was just talking to someone yesterday about how we’d know physical is taking over paper when CEF and GTU started to ignore the volatility on the COMEX. Obviously, real physical pricing started to ignore the COMEX months ago, but now we’re starting to see it in derivative stocks such as CEF and GTU.

Will the dam break this week, or this month, or in 1Q, I don’t know. But I do know that this is unprecedented action in these two stocks, and it’s no coincidence that this action is occurring the day after the Fed cut rates to ZERO.
P.S. Remember that both have outstanding shelf offerings (GTU’s was filed this week), and both funds are run by the same management team. So I’d expect some significant offerings to be announced shortly if the premiums stay this high, which would yield additional, significant physical gold and silver demand. end


Libor rates as promised to you last night would come down a bit.  Today the libor rate for the 3 month usa  interbank loan rate came in  at 1.58%.  The lease rates on gold fell to 1.6% on the 3 month level and on silver it was at 1.65%  It seems the powers to be want to make sure that silver and gold do not go into severe backwardation.


However, the dollar continues to plummet.  The Euro rose by 1.43 to the dollar and the usa index fell below 80.00 to 78.9.  This is why Bill H. stated last night that it was lights out for the usa dollar.  The usa dollar will collapse as the world shuns a currency yielding zero rate of return.

Say Bill stated:   “say goodnight Gracie!!”



The USA authorities are pretty angry that they missed the Ponzi scheme of Madoff:  Here is a great article as it shows the ineptitude of Christopher Cox. Here is the article:


Madoff Failure Shows Oversight ‘Flawed,’ Levitt Says

By Ken Prewitt and Tom Keene

Dec. 17 (Bloomberg) -- Bernard Madoff’s ability to avoid scrutiny from U.S. regulators for years shows that the monitoring system is "broken and has to be fixed," former Securities and Exchange Commission Chairman Arthur Levitt said.

Levitt, a senior adviser to Carlyle Group, said today in a Bloomberg Radio interview that the SEC must respond to allegations that it failed to act on tips of wrongdoing by Madoff that it had received since the 1990s.

"The system is obviously flawed and it’s got to be rethought in terms of how investors can be protected," Levitt said. SEC Chairman Christopher Cox "is doing the right thing" by calling for a probe of the agency’s role, Levitt said.

Madoff was arrested Dec. 11 after telling his two sons and federal investigators that he’d been using money from new investors to pay off old ones in a Ponzi scheme. He said clients of his New York-based investment-advisory firm lost $50 billion.

Levitt said Madoff may have run a conventional business for a while and "shifted gears," when the market turned against him. Madoff "clearly lied" to avoid registering with the SEC, which has shrunk as the financial industry has grown, Levitt said.

In 2004, the agency had 477 people in its inspection office, overseeing about 8,000 investment advisers, Levitt said. Today, 430 people regulate 11,300 advisers, along with about 16,000 mutual funds, he said.

Cox said yesterday the SEC failed to act for almost a decade on "credible and specific allegations" against Madoff. He announced an internal probe to review the "deeply troubling" revelations.

Levitt is a board member of Bloomberg LP, the parent company of Bloomberg News.

To contact the reporter on this story: Ken Prewitt in New York at; Tom Keene in London at


Here is Bill. H’s commentary for today.  It is a dandy and I concur with everything he states:


Bill H:

One more rant on the $ Dollar

To all; we have begun the end game when it comes to the Dollar and the world monetary system. Yesterday's rate cut to zero % is beyond farce for any central bank, this is third world stuff that they are adopting as official policy. The flight from the Dollar is continuing again today with close to a 10% drop in value from little over a week ago. This is BIG monetary stuff, in fact the biggest in history. At different points in history England, France, and Spain all held sway over the worlds' monetary system by virtue of having the largest hoard of Gold and thus the strongest currency. This was also true for the U.S. from 1944-1971. Since 1971 the Dollar has been the reserve currency but it truly was only a pretender.

Now that "quantitative easing" has become the new buzz word, the Dollar can in no way compete against anything real or even remotely scarce. The Fed and Treasury have told us all that they will continue to provide more money and credit until "deflation" is no longer a potential problem, this is clearly flawed. First off, with the amount of derivatives and credit outstanding [and blowing up on a daily basis] they cannot possibly create credit faster than it is collapsing. This IS deflation! BUT, they are intent on battling the "deflation monster" so print print print they will. Now for the next part that is only now just beginning to dawn on people, all this new money and credit absolutely DWARFS "real stuff".

If you add together all the commodities worldwide currently available for delivery, you don't even get a pimple on an elephant's ass as compared to the amount of "paper" that's been created over just the last 3 months to fill all of the "black holes". This fake stuff has been piling in as fast as possible into Treasury securities now yielding less than 3%. Once it begins to dawn on investors that getting a sub 3% yield for 30 years in a currency that can drop 10% in a week, then it becomes "Houston we have a problem". The Treasury market has, like all other "bubble" markets before it, become STUPID. It is now set up for the biggest bloodbath in history.

The solvency of the U.S. Treasury and Fed will surely be questioned soon, and the recklessness of these two entities will be case studies for the next 100 years or more. Oh yeah, the best part is Paulson and Bernanke telling us they will "drain the excess liquidity" once the economy begins to turn around. Just a couple of questions for them; and when did you say the turnaround will be?, will the Treasury or Fed still be solvent by then?. I really don't think they have a clue. Regards, Bill H.

This is interesting:  The Baltic Dry Index is a measure of shipping rates.  For the first time, the index has  gone up which signifies that commodities are beginning to rise and credit contraction is beginning to thaw:


The Baltic Dry Cargo Index, a measure of shipping rates, has bounced up over 20% in the last week. It was one of the first indicators to turn down last year and this is its best rally in a while. It is a measure of not only demand for goods, including food, but the ability of the system to finance international trade. A straw in the wind that reflation is finding some footing, perhaps? By the way, the index is still down 91% from its peak.



From Richard Russell:


Gold -- I believe that big money, institutional money, is finally beginning to "get it" about gold. Bonds are in trouble, muni bonds are getting hit, the dollar is in trouble, real estate is getting killed, the world is swimming in debt, and we're facing a monster "margin call" on all debt. Where can you find wealth that is not anchored in debt? Only one place -- gold.


This is from Bryant as he talks about the silver removed from the registered column:


On Tuesday there was major activity with the COMEX silver warehouse statistics. The main activity though was at the HSBC warehouse where 9,436,026 ounces of silver was withdrawn from the registered category. Of this amount, 132,814 ounces were withdrawn from the exchange and 9,303,212 ounces were switched to the eligible category. This is by far the largest change in categorization since September 2006. For the day total COMEX registered silver holdings dropped 9,551,447 ounces from 77,750,977 to 68,199,530. COMEX now has 12.3% fewer silver bullets to shoot at the market. Total warehouse stocks are now down to 126,972,398 ounces. Regards,



Well that is all for today.  Please remember that the two largest economies in the world are now at zero interest rates and this only spells trouble ahead.  The problem is that they cannot print money fast enough to counter the huge losses from the banks and the resultant spiralling debt deflation.


The Dow fell by 99 points today as many reflected on reality that the economy is in severe shock .  The problem is that they do not know what medicine is needed.


Speak to you tomorrow















Tuesday, December 16, 2008

Nov 16.08 commentary ...very important.


Good evening Ladies and Gentlemen:


There is so much to report tonight.


First gold closed in the normal comex market up by  5.20 to  841.50.  It advanced a further 15.00 dollars in the access market.  As I write this it is trading at 852.00.  Silver  rose by 5 cents to 10.67 and it advanced a further 15 cents in the access market.


The big news of course was the lowering of the fed funds rate to zero-.25%. Here is the highlights:


14:23 FOMC cuts rates to 0 to 0.25%; to "employ all available tools"
The Fed said that it will "employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time." The focus of the FOMC's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. In addition to previously announced measures, the Fed said that it "stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant." The Committee is "also evaluating the potential benefits of purchasing longer-term Treasury securities". The Fed will continue to consider ways of using its balance sheet to further.
* * * * *

















The short term rate was already at zero, so the Fed basically caught up on the yield curve.  However as I pointed out to you yesterday, something must be seriously wrong for Bernanke to go to zero officially.  My bet is that JPMorgan blew up on derivatives.  The credit default swaps on Ecuador did not help.  They are still feeling the pain on all of the other default swaps that went bust.  The  USA government knows it cannot let Morgan fail so they are putting in all the stops. It now looks like the Fed will print paper money to buy out Morgan’s losses.  Hyperinflation will follow almost immediately.

Here is what Bill H. has to say about todays events:

Say goodnight Gracie

To all; the Fed cut rates to 0% today. The interest rate gun is out of ammo as the Fed threw in the towel on interest rates. The next few days will be telling in all markets as today's surrender by the Fed has huge inflationary consequences. For any central bank to cut their rates to 0% is a red flag, for the central bank of the worlds' reserve currency to do this signals the end. All I can say is "uh oh", now what? This is a currency panic OUT of the reserve currency, plain and simple. "Good night Gracie". Bill H. P.S. Yesterday and today were the worst two days ever for the U.S. Federal Reserve note as reported by CNBC.



Please read the following passage.  I believe it is correct:

JUST IN … OK, here’s the latest on the coming JP Morgan blow up.

The information I sent your way yesterday was re-confirmed today. The lack of trust in the financial world over counterparty risk is "accelerating." This is forcing "remaining contracts" of all kinds, especially in the Over The Counter markets, to be "settled."

What is stressed to me is that it is a "currency" problem … so I did my best to nail that down. It has to do with the dollar, US interest rates, AND gold and silver, which represent a SUBSTANTIAL part of the JP Morgan derivatives book … and it is TRILLIONS and TRILLIONS … the magnitude of the problem is that large.

JP Morgan, the Fed’s bank supposedly can’t handle it, so the US Government is stepping in … and the only way the Fed can handle the GROWING problem, is to PRINT money. BUT, they can’t PRINT the money fast enough.

And yes ... this a major reason why the dollar is suddenly falling apart. If I, WE, know … much of the BIG MONEY has to know and they are dumping dollars as fast as they can, ergo the dollar is TANKING, and will continue to tank.

The Madoff mess, and $50 billion catastrophic loss, could not come at a worse time for the US Government and JP Morgan. Our government knows they CANNOT let Morgan fail and they are going all out to prevent that from happening. However, the Madoff scandal, and loss of capital, has those fearful of counterparty risk problems accelerating their exit from dealings with Morgan and other US institutions, in which they have dollar based, counterparty contracts. It is so bad that word to me is that the US cannot "waste time" on the relatively insignificant Madoff "disintermediation" nightmare, the JP Morgan problem is so MONSTROUS … because disintermediation is spreading like a horrible, malignant cancer and the numbers are mounting daily.

So, what are we left with? Bernanke’s helicopter drill is NOW in effect. The problem is Bernanke needs B-47’s or some gorilla plane like that. We have talked about this sort of scenario in MIDAS for some time. Well, we are here for sure and it is in play (Bill H and others have been all over this).

What will be critical for JP Morgan to stay afloat is for the Fed to be able to print money fast enough to meet the demand of those closing out contracts with Morgan.

The bottom line: HYPERINFLATION is upon us, or the eve of hyperinflation is.

As far as I know, no one else out there is delving into the JP Morgan mess. The insiders are trying to keep this horror show as quiet as possible.

One more thing, I asked my source about "settling" in regards to gold and silver contracts. Let the shorts cover I said. To cover anywhere near here, after THEY forced the prices down and caused billions of dollars of spec losses, would be more than just a travesty of justice, It would open the potential for hundreds of billions of lawsuits for what would be clear cut fraud by the concentrated shorts who took the market down the past many months. It is one thing to have gold go $1500 bid overnight (or in a few weeks) and silver go $30 bid, and then declare a force majeure (unable to deliver for unforeseen reasons) after letting the free markets play out until there is a legitimate reason WHY something HAS be done. It is another to force settlement of gold and silver contracts in what Dennis Gartman calls a BEAR MARKET!

Now, I am not saying that this gold/silver settle scenario is in the cards at this point in time, so don’t go running to the CFTC, and others, and raise a ruckus, it is just something to be aware of. In the meantime, it seems to me that owning as much gold, silver and the shares is the way to go. That’s where my head is.

Lets go over some economic news for today:

This is earth shattering:

November housing starts and permits at record low

WASHINGTON (Reuters) - New housing starts and permits plunged to record lows in November, as long-standing problems in the housing market continued to weigh on the U.S. economy, a Commerce Department report showed on Tuesday.

Housing starts fell 18.9 percent to a seasonally adjusted annual rate of 625,000 units from 771,000 units in October. That was much less than the 740,000 starts Wall Street analysts expected to see for November.

New building permits, which give a sense of future home construction, plummeted 15.6 percent to 616,000 units from 730,000 units in October. That was also much below Wall Street analyst estimates of 700,000.


As you can see housing starts and permits are plummeting.  The economy is in chaos.


And now for  consumer prices:

Consumer prices post second record drop in November

WASHINGTON (Reuters) - Consumer prices plunged at a record rate for a second straight month during November, according to a government report on Tuesday that is likely to fan fears that economic recession is rapidly heightening risks of deflation.

The Labor Department said its closely watched Consumer Price Index dropped 1.7 percent after falling 1 percent in October -- back-to-back record drops since the department started keeping monthly data in 1947. Core prices that exclude food and energy items were flat in November after declining 0.1 percent in October.

The drop in overall prices exceeded forecasts by Wall Street economists who had expected a 1.2 percent decline.

On a year-over-year basis, consumer prices were up 1.1 percent after a 3.7 percent increase in October. It was the smallest rise since mid-2002.

Energy prices plummeted 17 percent last month, double the 8.6 percent fall in October. It was the largest monthly decrease in energy prices since the department started monthly records in 1957.

The latest evidence of weakening prices came just hours before Federal Reserve policy-makers were expected to announce another half percentage point reduction in official interest rates in a bid to spur a healthier pace of economic activity.

But with jobs disappearing at an accelerating rate and the economy now in a year-old recession, consumers have cut back on many purchases and a lengthy period of weakness is anticipated by many economists.

Food prices in November were up a relatively slight 0.2 percent after a 0.3 percent October rise. It was the smallest monthly gain in food costs since March.


This is the deflationary forces kicking in due to the massive losses at the banks.

Goldman Sachs released its 4th quarter results and they were dismal.

Goldman Sachs Reports First Loss, Narrower Than Some Estimates

Dec. 16 (Bloomberg) -- Goldman Sachs Group Inc. reported a fourth-quarter loss of $2.12 billion, the first since the company went public in 1999, as asset values and investment-banking fees declined.

The loss of $4.97 a share in the three months ended Nov. 28 was less than analysts' most pessimistic estimates, and the shares rose as much as 8.3 percent. The firm reported net income of $3.22 billion, or $7.01, in the same period a year earlier.

Chief Executive Officer Lloyd Blankfein, who led the firm to its lowest annual earnings since 2002, gave up his bonus after converting Goldman Sachs to a bank-holding company and accepting $10 billion in bailout funds from the U.S. government. The firm that set a Wall Street profit record in 2007 cut 10 percent of its employees as its stock plummeted 69 percent this year and revenue fell by half.

``This is not worse than the worst expectation across the analyst community,' Douglas Ciocca, managing director at Renaissance Financial Corp., who oversees $1 billion, said in a Bloomberg TV interview. ``Anything they can glom onto as remotely positive is probably propping the stock up.'

Goldman Sachs rose $5.29, or 8 percent, to $71.75 in New York Stock Exchange composite trading at 10:10 a.m., after touching $71.99.

Glenn Schorr, an analyst at UBS AG in New York, estimated Goldman Sachs would post a loss of $5.50 a share. The average estimate of 18 analysts surveyed by Bloomberg was for a loss of $3.73 per share…  end

Libor today on the 3 month usa interbank rate fell to 1.84%.  The gold lease rate for the 3 month loan  came in at 1.60%.  However the 3 month lease rate for silver rose to 1.98% so silver is in backwardation.  However because libor is still way above the 1% threshold, banks are still loathe to loan.  We will have to wait until tomorrow to see what Libor does from Europe.  I believe it will go down a bit .

It seems, that the Madoff scam wiped out the SPIC reserves which are reserves to pay off in case of fraud in brokerage accounts.

Here is the passage:

Hi Bill
SIPC Reserves WIPED OUT by Madoff Scandal

The SIPC only shows $1.5B in reserves as of January 2008 but Bernie Madoff Securities was a SIPC insured entity!


When this gets out and people scramble to withdraw from their 401k all hell will break loose!

The walls are about to fall.
Bix  end

I would like to comment on the silver and gold deliveries at the comex.

In gold the total amt to be delivered has risen to 1.3 million oz.   Silver remains at 29.75 million oz.  However you must add the 1.0 million oz for Nov. options.  There is another ½ million oz remaining to be hit in December.  Another 5 million oz moved over to the non delivery month of January.


What is very strange is that on both silver and gold comex we witnessed zero oz of both enter the comex.  During the past year on every delivery month, we saw that if 15 million oz was hit, 15 million oz moved into the comex and then out again.

For the first time, I am seeing zero oz on both metals enter the comex.  They are nowhere to be seen and this is ominious.

Maybe this is why there are rumblings about JPMorgan.

In conclusion, the race to zero on interest rates is already here. The first country to get to zero was Japan and now the USA has joined the second largest economy in the world at zero bound.  The global economy is in disarray.  Fasten you seatbelt..the journey is going to be very bumpy as we spiral out of control


Speak to you tomorrow




Monday, December 15, 2008

commentary Dec 15.08.


Good evening Ladies and Gentlemen:


Gold closed up by 16.60 to 836.60 and silver rose by 43 cents to 10.62.  The open interest on gold comex continues to climb.  The new Oi stands rose by 3950 contracts and the new level of open interest is  275000.  The silver Oi continues to rise as well climbing by  371 contracts to 85000.


The yield on 1-3 month treasury bills continue to trade at around zero.  The 10 year treasury traded at a yield of  2.5%.

The Libor rate fell by 4 basis points to 1.87%.


Tomorrow is the day they settle on overnight rates.  My bet is that Bernanke et al. will settle on .5%.  There is some talk of rates going to .25%.  If  that happens, the Fed will have exhausted all of its moves.  A rate at .25% would probably signal to Wall Street that it is in desperate shape.

Count on .5%.

Early in the earning we learned this:

*Merrill Lynch put out a sell recommendation on JP Morgan Chase this morning with no explanation.

*Word is beginning to circulate that JP Morgan has become a systemic risk problem. That same word is they don’t know how to fix the problem. On that score heralded CEO James Dimon, who was aware of the gold price suppression while CEO at another bank (not Citi), said the other day that the Bear Stearns takeover had become more difficult than he thought it would be.

*The reason is something brought your way CafĂ© contributors for years: their hundreds of trillions derivatives book. It has begun to blow up according to my source, something MIDAS and the GATA camp have pounded the table about for a LONG time.  End

JPMorgan has huge derivatives.  We learned on Friday that Ecuador was going to suspend interest payments.

We then learned that two banks were taken over by the Feds.

Fed regulators shut 2 banks in Georgia, Texas

Friday December 12, 7:38 pm ET
By Sara Lepro, AP Business Writer
Regulators close 2 banks in Georgia, Texas, bringing bank failures to 25 in year to date

NEW YORK (AP) -- Regulators on Friday closedHaven Trust Bank in Georgia and Sanderson State Bank in Texas, bringingto 25 the number of U.S. bank failures this year.The Federal DepositInsurance Corp. was appointed receiver of Haven Trust Bank, based inDuluth, Ga., and Sanderson State, with one office in Sanderson, Texas.

HavenTrust had assets of $572 million and deposits of $515 million as ofDec. 8. Sanderson State had assets of $37 million and deposits of $27.9million as of Dec. 3.

BB&T Corp., a large regional bank basedin Winston-Salem, N.C., agreed to assume all of Haven Trust's deposits.BB&T also will buy about $55 million of the failed bank's assets; the FDIC will retain the rest for later disposition.


During the day, we learned that the SEC has been alerted to the potential of a Ponzi scheme  at Madoff investments for over 7 years starting in 1999.  Many tried to figure out how Madoff got the returns that he did.  They just couldn’t be replicated.


I hope everyone saw 60 Minutes yesterday.  They highlighted a new mess which is now rearing its ugly head:  the ALT A’s.

As promised to you these mortgages total in excess to 1 trillion dollars.  Sixty minutes stated that it is 1 trillion but I think it is closer to 1.2 trillion. 


They also talked about the ARMS resets.  They stated that these represent .5 trillion.  It is closer to 1.8 trillion dollars.

The losses for the banks, if we assume 70% losses from these mortgages, would total in excess of 3 trillion dollars.  Then you have to add consumer loans, commercial mortgages and then credit default swaps,  You can now get the size of this mess.  It is certainly north of 5 trillion dollars to the banks in the  usa.  Europe and England has about 3 trillion of losses. Here is another article written on ALT A’s

Alt-A mortgages deteriorating rapidly

From Fitch:

"Fitch said it now expects losses on all Alt-A collateral to far exceed the estimates of its ‘moderate stress’ scenario in its late ratings update earlier this year. "Market developments, ongoing home-price declines and loan performance trends in the Alt-A sector over the prior six months have effectively eliminated the possibility of this stress scenario,"

The Alt-A mortgage market is close to $1 trillion versus the subprime mortgage market, which is just under $500 billion. Get ready for another BIG slide down due to massive banking and structured product (SIV/CDO's, etc) losses.

Then we learned about the Mfg. sector of the usa:

08:30 Dec Empire Manufacturing reported (25.76) vs. consensus (28)
Nov reading was (25.43).
* * * * *

NY Fed manufacturing hits record low in December

NEW YORK, Dec 15 (Reuters) - A gauge of manufacturing in New York State hit a record low in December, below the previous record trough the month before, the New York Federal Reserve said in a report on Monday.

The New York Fed's "Empire State" general business conditions index fell to minus 25.76 in December, versus minus 25.43 in November. Economists polled by Reuters had expected a December reading of minus 27.25.

Overall, conditions "deteriorated significantly," in December, the report said.

The prices paid component turned negative, charting a record monthly drop, falling to minus 7.45 in December from 20.48 in November.

Employment contracted again in December but at a less severe rate than the previous month with a reading of minus 23.40, versus minus 28.92 in November.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.


09:15 Nov Industrial Production reported (0.6%) vs. consensus (0.8%); Capacity Utilization 75.4% vs. consensus 75.6%
Prior Industrial Production revised to 1.5% from 1.3%; Capacity Utilization revised to 76.0% from 76.4%.
* * * * *

U.S. Nov industrial production dips 0.6 pct

WASHINGTON, Dec 15 (Reuters) - U.S. industrial production slipped by a slightly less-than-expected 0.6 percent in November and was a bit stronger the month before than previously thought, Federal Reserve data on Monday showed.

Economists polled by Reuters had expected a 0.7 percent decline in November after a revised rise of 1.5 percent in October. This was previously reported as a 1.3 percent increase.

November's manufacturing output fell 1.4 percent versus a 0.6 percent gain in October, while November's mining output was up 2.5 percent. Utility output was 1.6 percent higher.

Compared with November 2007, industrial output was down 5.5 percent, the Fed said.

Capacity utilization shrank to 75.4 percent in November from 76.0 percent the month before, previously reported as 76.4 percent. It had been forecast by economists to edge down to 75.7 percent in November. Manufacturing capacity usage decreased to 72.3 percent, the lowest level since April 2002.


The usa home builder sentiment remains dismal:

US Dec home builder sentiment remains at record low

NEW YORK, Dec 15 (Reuters) - U.S. home builder sentiment held steady at a record low in December as deepening economic turmoil, a deteriorating job market, and a flow of foreclosed homes on to the market continued to hurt market conditions, an industry group said on Monday.

The National Association of Home Builders said its preliminary NAHB/Wells Fargo Housing Market Index was 9 in December, unchanged from November when it reached its lowest level on record since being launched in January 1985.

Readings below 50 indicate more builders view market conditions as poor than favorable. The December index was in line with expectations based on a Reuters survey of economists.

The U.S. housing market is suffering the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down home prices.

"The crisis continues," NAHB Chairman Sandy Dunn, a home builder from Point Pleasant, West Virginia, said in a statement.

"While builders are doing everything we can in the way of price and non-price incentives to move new homes off the books, buyers are afraid to move forward, and in any case there is almost no way to compete with the cut-rate product that is continually flooding the market from mounting foreclosures," she said.

Dunn said Congress and the administration must step in with substantial incentives to bring qualified buyers back to the table and effective foreclosure relief programs to end the

The gauge of current single-family homes sales fell to 8 from a revised 9. The index of sales expected in the next six months dropped to 16 from a revised 18. The prospective-buyer traffic measure was unchanged at 7, the group said.


More on the Madoff situation:

Hi Bill:
Monday's Wall Street Journal just added more fuel to your fire for the CFTC meeting Thursday.

SEC Had Chances For Years to Expose Madoff's Alleged Ponzi Scheme

An enforcement case 16 years ago gave the Securities and Exchange Commission its first shot at figuring out how Bernard Madoff could rack up favorable returns with such uncanny consistency.

After that, it received repeated warnings from outside whistle-blowers and at least twice looked into Mr. Madoff's brokerage itself.

Each time, it blew its chance. It was only last week, when Mr. Madoff allegedly confessed to his sons that he was running what amounted to a "giant Ponzi scheme," that the apparent $50 billion fraud came to light.

"This is a debacle for the SEC," said Joel Seligman, an SEC historian and president of the University of Rochester in New York.

"The commission has a lot to answer for."

Is the CFTC now ready to face the same type of "debacle?"

This is going to be a very interesting week. Good luck!
Edward Ulysses Cate

Master stroke from a master manipulator

One minor observation on the Madoff swindle; I'm extremely impressed by Bernard and his lawyer's ability to manipulate their situation even as the scope of the crime became public. There's no doubt that the US Attorney's office would like nothing better than to stick the old man and his two offspring — who worked together with him — in adjoining cells for the rest of their natural lives. What a brilliant stroke to have the sons turn in their father while professing their shock at the situation! That ought to throw a monkey wrench into proving a conspiracy between the three. Now the Justice Department will have its hands full trying to demonstrate beyond a reasonable doubt that the two sons were complicit in the fraud — and the family will fight it tooth and nail. When you add that to Madoff's apparent penchant for secrecy (how much of this is on paper and how much is in his head?), the proof may be long in coming. By throwing himself on his sword and confessing, Bernie may have succeeded in keeping his sons out of jail. Amazing.
Best wishes,

The Chairman of GATA is going to visit the Chairman of the CFTC on Thursday..

Should be a fascinating meeting.











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