Jan 3.08 commentary.

www.lemetropolecafe.com

 

Good morning Ladies and Gentlemen:

 

Gold closed down by 4.30 to $878.50 even though it fell in the lightly traded access market.  Silver however rose by 20 cents  to 11.47.  It basically remained the same price in the access market.

 

The gold comex OI rose by 6000 contracts to 306000.   There are many players looking to gold in this economic environment.

 

Silver’s OI rose fractionally to 8600.

 

The big news is in the silver deliveries.

First of all, the entire 385 contracts that stood in January stood for delivery of silver  (approx 1.945 million oz)  To boot, there are additional January options exercised for contracts that are standing for delivery.  The total is around 450 contracts.  (2.25 million oz)

 

There have been zero oz of silver enter the comex.  Yesterday almost 900,000 oz left the comex and this reduced the registered category.

 

However, there is still no sign how the 32 million oz of silver deliveries for December  are going to be settled.

 

In gold, we have the same story.  There have been 1150 contracts exercised on options standing for delivery.  (115000 oz).  There have been zero oz of gold added to the comex and only 300 oz gold removed.

The registered category remains the same as Dec 31.08.  I will keep you informed on future developments.

 

However, the IShares have seen a big increase in paper gold at the comex.  It now stands at 2.0 million oz of paper gold out of 8 million oz.

 

I sense trouble here!!

 

 

Libor rates went down slightly to 1.41%.  What is more disturbing is the contraction in commercial paper.  Here is the link:

 

US commercial paper outstanding falls on week-Fed

NEW YORK, Jan 2 (Reuters) - The U.S. commercial paper market shrank in the latest week, marking the second consecutive week of contraction, data from the Federal Reserve showed on Friday.

For the week ended Dec. 31, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, fell by $20.4 billion to $1.681 trillion from $1.702 trillion the previous week.

Asset-backed commercial paper outstanding rose by $400 million after falling by $6 billion the previous week, leaving the total outstanding in this sector at around $733.3 billion, the Fed said.

Unsecured issuance by financial firms outstanding fell by $5 billion in the latest week, after rising by $6.4 billion the previous week.

-END

The credit lines are completely frozen.

 

This will explain why gold purchases to India and Turkey have plummeted due to lack of credit.

We are beginning to see agricultural products rise in price like cocoa and other grains, not due to higher demand but due to lack of credit.  Farmers cannot get money for fertilizer so they cannot grow.  No money is available for harvesting.  Cocoa hit an all time high on Friday.

 

The Manufacturing sector in the usa is abysmal.  The ISM manufacturing index plummeted to an alltime low of 32.  yesterday.  Here is the link:  (any number below 50 means contraction)

 

U.S. manufacturing sector tumbles in December-ISM

NEW YORK, Jan 2 (Reuters) - U.S. factory activity fell to a 28-year low in December, according to an industry report released on Friday that showed a more severe contraction in the sector than expected.

The Institute for Supply Management said its index of national factory activity fell to 32.4 -- the lowest since 1980 -- from 36.2 in November.

A reading below 50 indicates contraction in the sector.

Economists had expected a reading of 35.5, according to the median of their forecasts in a Reuters poll. Their 69 forecasts ranged from 32.0 to 40.0.

-END

The entire usa manufacturing is a big zero.  Look at the comments from Ford:

 

Ford sees sharp drop in U.S. sales, no Q1 rebound

DEARBORN, Mich (Reuters) - Ford Motor Co expects industrywide December U.S. auto sales to drop by some 35 percent from a year earlier with no sign of a turnaround in the first quarter of 2009.

Ford, the No. 2 U.S. automaker, expects that full-year industrywide sales of light vehicles in the world's largest market will drop to near 13.2 million for 2008, down from near 16.2 million in 2007, Ford's chief sales analyst George Pipas said on Friday.

The only other time the U.S. auto industry has seen a similar 3-million unit plunge in sales over the course of a single year was during 1974 in the wake of the first oil shock, Pipas told reporters.

"We're not looking for the first quarter to be much different from what we saw in the fourth quarter," Pipas said in a briefing with reporters.

 

 

The USA government released 4.0 billion dollars to GM on December 31.08 as they needed the funds badly.  Chrysler is also badly in need but they will have to wait.

The auto industry needs to recapitalize.

 

The formula sought is a reduction in wages from 150,000 dollars per worker to about 75000 equal to what non-unionized workers get in the south.  The bond holders are to take a haircut of about 2/3.  They would receive shares for their debt.  The current shareholders will see their equity drop to less than $1.0 per share.

 

We are also seeing problems in California.  The two year deficit for California is now over 42 billion dollars and the bond issue that California needed has been withdrawn due to no buyers.

California has about 28 days left to pay their workers.  Arnold promises that in Feb he will need to issue IOU’s to pay for workers and for services rendered.

California has an economy of 1.7 trillion dollars and a budget of about 144 billion dollars.  They are already the highest taxed state in the union.

 

In Alabama, we should see Jefferson county (Birmingham) go into chapter 9 because of their 3.0 billion dollar sewage mess.  There are criminal investigations ongoing.

 

As for Europe, expect that interest rates in England to plummet to 1.0% this week.

Also expect to see Italy, Spain, Greece and Turkey go the ECB for funds as each have their treasuries bare.

We are witnessing a total global meltdown.

 

    

We are also witnessing countries issue debt in usa dollars instead of local currency due to the sharp drop in commodity prices.   Please read the following link:

 

Original Sin’ Returns as Emerging Markets Plan Bonds

Dec. 31 (Bloomberg) -- Developing nations plan to sell the most dollar-denominated bonds since 2005, reversing a shift into local debt, as commodities prices fall, foreign reserves diminish and emerging-market currencies weaken.

International sales may rise 68 percent to $65 billion next year, according to estimates by ING Groep NV. Mexico raised $2 billion in a Dec. 18 offering. Peru’s Finance Minister Luis Valdivieso met with investors in New York, Boston, London and Madrid this month to drum up interest for the country’s first foreign sale in almost two years.

Governments are growing more dependent on international markets after the six-month drop in raw materials reduced earnings from exports and caused budget deficits to widen. Dollar borrowing will increase foreign-exchange risk, a pattern that led countries across Latin America to default in the 1980s, said Ricardo Hausmann, director of the Center for International Development at Harvard University in Cambridge, Massachusetts.

"Countries will be forced to issue in dollars," said Hausmann, a former Venezuelan planning minister who called developing nations’ reliance on foreign markets the "original sin" in a 1998 article in Foreign Policy magazine. "Debt structures will deteriorate again."

Dollar bond sales fell 43 percent in the past three years from $68 billion in 2005 as a 134 percent surge in commodities, as measured by the UBS Bloomberg CMCI Index, helped countries repay foreign obligations, according to Amsterdam-based ING. Local-currency debt offerings rose 23 percent annually since 2005, according to the Bank for International Settlements in Basel, Switzerland….

-END

Expect to see huge volatility on the markets once everyone returns from the Christmas-New Years break.

 

The Dow does not belong at 9000 due to the financial mess. 

 

See you on Monday.

Harvey.

 

 

 

 

 

Jan 1.09 commentary.

www.lemetropolecafe.com

 

Gold closed the year up by 13.80 to 882.80.  Silver was the engine as it closed up by 35 cents to 11.27. Tuesday we saw an outside day reversal as the cartel wanted gold and silver to close negatively.  They were thwarted as word came back to many on the plight of the comex to deliver contracts.  We will have to wait and see how the dust settles.  (see my commentaries below).

 

The gold comex OI rose by 2000  contracts to an even 300,000.  Silver’s OI continues to fall.  Its OI stands at 85000.

 

ON Tuesday, Dave from Denver noted a new entry on the comex books.  The comex now has as inventory ishares gold trust.

Here is the link from the comex:

 

METAL WAREHOUSE STATISTICS
GOLD
Troy Ounce								As of the Close of Business: 12/31/2008
DEPOSITORY		PREV TOTAL	RECEIVED	WITHDRAWN	NET CHANGE	ADJUSTMENT	TOTAL TODAY
BRINK'S, INC.
Registered		167,405			0		167,405
Eligible		122,645			0		122,645
Total		290,050	0	0	0	0	290,050
SCOTIA MOCATTA
Registered		955,128			0		955,128
Eligible		3,057,545			0		3,057,545
Total		4,012,673	0	0	0	0	4,012,673
HSBC BANK, USA
Registered		1,664,968			0		1,664,968
Eligible		2,527,123			0		2,527,123
Total		4,192,091	0	0	0	0	4,192,091
					0
MANFRA, TORDELLA & BROOKES, INC.
Registered		39,452			0		39,452
Eligible		606			0		606
Total		40,058	0	0	0	0	40,058
TOTAL REGISTERED		2,826,953	0	0	0	0	2,826,953
TOTAL ELIGIBLE		5,707,919	0	0	0	0	5,707,919
COMBINED TOTAL		8,534,872	0	0	0	0	8,534,872
iShares COMEX Gold Trust
		Gold	Gross Troy
Sub Custodians		Deposited	Ounces
Brink's, Inc.		100 oz.	0.00
		Kilo	0.00
		Total	0.00	*
Scotia Mocatta		100 oz.	488,394.818
		Kilo	0.000
		Total	488,394.818	*
London		400 oz.	580,005.775
New York		400 oz.	23,137.63
Toronto		400 oz.	1,057,809.234
		Grand Totals	2,149,347.452
*  ounces indicated are included in respective depository's Eligible Totals above.
Note:  "There may be differences in the total Gold ounces owned by the iShares COMEX Gold Trust indicated by
this report and the total ounces of Gold in the Trust as stated by the Bank of New York's, the trustee, daily
report.  The COMEX Report only listed Gold actually settled in that account, whereas the Bank of New York
Report includes Gold pending settlement in one or two days."
If you scroll down the middle of the page, you will see the entry  “ishares  comex gold trust”   It looks to me that we now have paper gold inventory at the comex and paper gold  at the gld in London.  We will be writing to the CFTC and ask what on earth is going on!!
Adrian writes the following:   Then Adrian… Bill, There is something suspicious going on with COMEX warehouse stocks and deliveries. 1.3 Million ozs of gold delivery notices were issued for DEC. The dealer inventory level (registered) and the customer inventory (eligible) have hardly changed all month with registered at 2.8 Mozs and Eligible at 5.7 Mozs for a total of 8.5 Mozs. What happened to the 1.3 Mozs of gold for delivery? Delivery can not be "off exchange" the gold has to be brought into a COMEX warehouse before it can be shipped out again. Yesterday in the Midas you reported that rumors are that COMEX warehouses are very busy…that doesn’t jive with inventory levels that don’t change! On the silver side we started the month with about 129 Mozs of total silver inventory and at month end it was 127.8 Mozs so around 1 million ozs was removed in DEC BUT about 13 Mozs moved from the dealer inventory to customer inventory. However, 32 Mozs of delivery notices were issued so where are the other 19 Mozs? Also this 13 Mozs change of category doesn’t jive with rumors of warehouse activity being very high because you don’t need to truck anything to change accounting category of existing stock! The shorts have until today for deliveries but I doubt 1.3 Mozs of gold and 19 Mozs of silver is going to move today. Something is amiss. Perhaps someone who follows warehouse levels and delivery notices more closely than I do could comment. Cheers Adrian End. We have heard that comex warehouse activity was bustling.  Yet we see no silver or gold leave.  It just does not add up.
This is interesting:  the Fed has given 10 billion dollars to the car rescue and they have not received congressional approval for this.  It seems that the some banks have not cashed their checks yet, so the Fed decided to Kite.  Here is the link: 20:45 Treasury over the limit on bailout funds - WSJ The Journal reports that the Treasury has committed nearly $10B more than the $350B Congress has authorized thus far for the financial sector rescue package. The paper adds that in the wake of the Treasury's move to extend $6B to GMAC, it has now pledged a total of $358.4B from the Troubled Asset Relief Program. According to the article, this dynamic suggests that the Treasury is tapping into the second half of the $700B set aside in October before it has been released by Congress. For its part, the Treasury says it has complied with the bailout legislation, noting to reporters yesterday that it has not come close to the $350B limit because not all of its commitments have been fulfilled. Reference Link * * * * *  end Treasury GMAC Bailout A Fraudulent "Kiting" Scheme? Henry Blodget | Dec 30, 08 7:36 AM The Bush Administration seems determined to extend the US auto industry's life until January 21st come hell or high water. The latest sign of this desperation? The Treasury just bailed out GMAC with $5 billion of taxpayer TARP money that it doesn't really have. NYT: The Treasury Department injected $5 billion into GMAC, the automobile financing company, as part of a deal announced Monday night that will let GMAC convert itself into a bank holding company to reduce its borrowing costs and thus borrow money at low rates from the Federal Reserve... In shoring up GMAC, the Treasury resorted to using money from the Troubled Asset Relief Fund, the $700 billion rescue program for financial institutions that Congress approved in early October. The Treasury had already allocated all the $350 billion that Congress authorized for the first half of the program. But even though the Treasury Department has not yet requested the second half of the money, officials said they could provide the financing to GMAC because they have not actually used all of the money allocated for recapitalizing banks. Catch that? This sounds equivalent to writing $1,100 of checks on a checking account with $1,000 in it because only $900 of the checks have already been cashed. In the real world, this is called "check kiting," and it's illegal. (Note also when the GMAC bailout was announced: After GMAC already had the money. Much harder for angry outsiders to reverse a decision like this than to stop it before it is made). So will the Treasury now at least ask for the remaining $350 billion of the TARP to cover commitments it has already made, or will it try to pass that buck to Obama, too. -END- \   This is concerning the Rob Kirby report on the OCC derivatives of JPMorgan.   Regarding J P Morgan’s $71B Gold Derivative position: http://www.occ.treas.gov/ftp/release/2008-152a.pdf page 30 By definition on the OCC website these are over the counter derivatives positions. So their short position would consist of the $71B plus any short position they have on the exchange. Besides Lehman Brothers every time a U.S. financial entity has lost in the over the counter derivatives market, the U.S. Government has intervened and paid off the counterparty. So where is the Gold going to come from when JP Morgan needs to deliver? In 3 months JP Morgan shorted $18B worth of Gold. Are they planning on delivering GLD’s Gold which they are the custodian for (GLD currently claims to have $21B in Gold)? Are they planning on delivering the IMF’s Gold? 400 tons of IMF Gold would only be $10B. If so wouldn’t the U.S. Congress have to approve the short sale? Has J.P. Morgan taken a naked short position in Gold that U.S. citizens will be liable for? Who is the counterparty which JP Morgan has entered a contract to deliver $71B worth of Gold? Where are the regulators? Why are the idiots who got us into this mess still in power? These people have been wrong about everything for over a decade; yet, they are still making important decisions which continue to benefit themselves at the expense of the rest of America. Why aren’t they in jail? And this from Adrian on the same matter:   And here’s what J.P. Morgan’s 15 billion "addition" to their < 1 yr. gold derivatives book did to the price of gold as illustrated using GLD as a proxy for the POG This implied that the increase in derivatives directly drove down the price of gold which is not the case. The price was definitely driven down on the COMEX and from the CFTC Bank Participation reporting we know three or less US banks sold 7.86 Million ozs of gold short in July. If we were crime scene investigators we would almost certainly have JPM as the number 1 suspect for selling 7.86 Mozs of gold short on the COMEX given this highly unusual and massive build up in derivatives that was not seen at any other bank. What we don’t know is whether the derivative position is short or long. Again as crime scene investigators let’s examine the evidence. At the end of Q2 gold was at $942 and rising. The credit crisis was unfolding and gold was receiving safe haven buying. Since 2006 the major traditional gold shorts on the TOCOM had been steadily covering. It is therefore unlikely that any major investment house or individual investors would want to collectively bet 15 B$ that gold would go down! It is most likely thousands of different entities wanted to bet gold would go UP which would be the intuitive move. Who would be crazy enough to take the short side of such derivative bets which in a financial crisis situation would intuitively be a guaranteed loser? Imagine that a bank knew it was going to sell 7.86 Mozs short on the COMEX. Would that bank see an opportunity to leverage the gains it was going to make from its illegal market manipulation on the COMEX? Only the gold derivatives with maturities less than 1 year significantly increased in JPM’s derivative book. What’s the betting they had a maturity of 3 months or less? What made them so sure to the tune of 15B$ that gold was going to go down in the less than 1 year time frame? Once they had sold 15B$ worth of bets that the gold price was going to rocket higher as it should have they set about selling 10% of world gold production short in just one month to make sure that all those bets expired worthless! With the carnage they created on the COMEX they were able to clean up by covering their short position at a much lower gold price as the panicked longs stampeded for the exits with the propaganda circulating that gold had lost its safe haven status! Huh? None of the other top 5 US Banks by derivative holding made any significant increase in their gold derivatives so this was not an "intuitive trade" that was anticipated by all banks. It was only anticipated on a massive scale by JPM. The ONLY logical conclusion was that JPM was NOT betting; they KNEW what was going to happen to gold (and silver). This means they were naked short gold in the OTC derivatives market and naked short on the COMEX gold futures market. They were so sure of their actions that they also sold 138 million ozs of silver short at the same time on the COMEX! How could such a brazen outlandish market manipulation be undertaken? Clearly this had to have been undertaken at the behest of the Treasury/Federal reserve. If it had gone horribly wrong JPM would have been backed stopped with Treasury gold. The motive? The motive is clear the USD rose 22% over the same time period when the FED was creating masses of dollars out of thin air and the Treasury was announcing rescues and bail-outs one after the other. The talk of the town, as a consequence, became "deflation" because it appeared the USD was more desirable to own than anything else! As a result the markets have been begging for more dollars to be issued, begging for lower interest rates, begging to buy Treasuries for safety and the FED and the Treasury have been only too happy to comply. How convenient is that? If I were a crime scene investigator I would know exactly WHO DUNNIT! Even President Bush felt compelled to confess and try to excuse the enormity of the crime(s) that have been committed over the last few months…. QUOTE http://www.google.com/hostednews/afp/article/ALeq M5jyyKrPjYt7VhpS8G8DrRkr18B0hA WASHINGTON (AFP) — US President George W. Bush said in an interview Tuesday he was forced to sacrifice free market principles to save the economy from "collapse." "I've abandoned free-market principles to save the free-market system," Bush told CNN television, saying he had made the decision "to make sure the economy doesn't collapse." END Did the "free Press" ask specifically what they had done that sacrificed free markets to save the economy? No! Because the "free Press" has also been sacrificed! Cheers Adrian  It looks to us that the comex inventory is loaded with paper obligations.  This is very serious and will be dealt with.   I wish you all a Happy New Year and I hope a prosperous one. Harvey.