Saturday, January 17, 2009

Jan 17.09 commentary.

 

 

 

WWW.LEMETROPOLECAFE.COM

 

Good Morning Ladies and Gentlemen:

 

First of all, Shadow Government Statics has just released its update for the 4th quarter on all aspects of the economy.

The real contraction for 4th quarter retail sales was 17.1%

The 4th quarter was a contraction of 11.5% on output on an annual basis which followed 8.9% in the 3rd quarter.

By definition:  we are now in a depression.

Here is the commentary:

 

 

 

 

Market Commentary From Monty Guild

Posted: Jan 16 2009     By: Monty Guild      Post Edited: January 16, 2009 at 5:22 pm

Filed under: Guild Investment

Dear CIGAs,

The excellent Shadow Government Statistics economic service (shadowstats.com) makes the following statements today, January 16,2009 in a flash update.

“The annualized real contraction for fourth-quarter 2008 retail sales was 17.1%”

“Consistent with a still-deepening recession, fourth quarter 2008 production showed an annualized quarterly contraction of 11.5%, following an 8.9% contraction in the third quarter.”

“ A depression is defined [SGS] as a recession where peak-to-trough contraction exceeds 10%, a level currently exceeded in annualized terms by both fourth-quarter real retail sales and industrial production.”

SUMMARY

Since we at Guild Investment Management predicted several months ago that we were entering a moderate depression, rather than a recession during the current downtrend, few have agreed with our view. The above data by Shadow Government Statistics show that the trends in retail sales, which is considered a leading economic indicator, and in industrial production are strongly indicative that a depression is in the process of developing in the United States.

Respectfully yours,

Monty .

 

End

 

It is interesting that Williams, through his calculations determined that the true 2007 GDP was in reality 14 trillion dollars and we have now contracted at about 10% to 12.6 trillion dollars.  Another 10% drop in 2009 would bring the GDP level to about 11.3 trillion dollars.  This is where we are headed.

Gold had a solid day yesterday climbing by  $32.60 to 839.60.  Silver rose by 77 cents to 11.20.  The open interest on both metals hardly moved despite the huge volatile day on Thursday.  Obviously, the cartel were flexing their muscles.

The day began with announcements from two major banks, the Bank of America and Citibank.   Bank of America also reported on Merrill Lynch which they took over in December.

Here are the announcements that  shook Wall Street:

1.        First…Bank of America:

06:11 BAC Bank of America reports Q4 EPS ($0.48), unclear if comparable to Reuters $0.21 (8.32)
Company reports revenues of $15.68B vs Reuters $20.59B. Merrill Lynch preliminary results indicate a Q4 net loss of $15.31B, or ($9.62) per diluted share.
Provision for credit losses was $8.54B from $6.45B in Q3. Net charge-offs were $5.54B, or 2.36% of total average loans and leases compared with $4.36B and 1.84% in Q3.
Nonperforming assets totaled $18.23B, or 1.96% of total loans compared with $13.58B and 1.42% in Q3.
Allowance for loan and lease losses was $23.07B, or 2.49% of loans and leases measured at historical cost compared with $20.35B and 2.17% in Q3.
* * * * *

CNBC’s Mark Faber said the Merrill loss was actually $5 billion greater than reported, therefore in line with what our source told us last week.

08:13 BAC Follow-up: Bank of America expects net losses at or greater than Q4's for next several quarters - conf. call (8.32)
Management says there is a considerable amount of uncertainty in 2009 and as a result they will not be providing a detailed outlook for the quarter or year. However, they do not see any slowdown in provisions over the next few quarters and would thus expect losses at least equal to that realized in Q4 to be seen over the next several quarters. Investment bank trading activity is expected to remain a considerable headwind and any improvement on that front would be a substantial boon to results. Net interest income is anticipated to drop in Q1 due to seasonal factors and lower rates, but they are expecting improvement in each quarter thereafter during 2009. Management's overall tone regarding a potential recovery in 2009 has been very downbeat, with CEO Lewis mentioning that he is hopeful some signs of improvement will begin to be seen in the 2H of this year. Regarding the Merrill acquisition, the company expects the deal to be dilutive on a GAAP basis over the next two years as investment banking activity should remain at sub-par levels. They go on to note that they have not formally guaranteed Merrill's debt, but note that they clearly view it as a critical part of their ongoing operations. Company has received several questions regarding the Merrill deal and its completion, with CEO Lewis taking a few minutes to discuss what actually happened over the past few months. He says that the Merrill book experienced much higher deterioration than expected during the fourth quarter; they do not believe it was an issue of overlooking assets, but rather underestimating the severity of what would happen post-Lehman. The magnitude of deterioration was much greater than they (or anyone, he believes) had anticipated. Moving to December, he says that they inquired about amending the deal or adjusting the transaction price; the government conveyed their belief that terminating or delaying the transaction could have a detrimental effect system-wide and then offered its assurance to provide additional liquidity and fence off some of the most toxic assets (which turned out to be the $118B backstop). Concluding the thought, he says that after those assurances, they came to the conclusion that it was best for the company, shareholders and the country to complete the deal on the original terms. Separately, he also noted that of the $118B in the troubled asset pool, around 75% were from legacy Merrill and 25% were from BofA.
* * * * *

  Citibank:

2.   06:00 C Citi reports Q4 EPS ($2.44) (3.83)
Reuters is ($0.91); First Call is ($1.19). Company reports revenues of $5.60B vs Reuters $18.72B.
* * * * *

06:08 C Citi confirms it will realign into two businesses: Citicorp and Citi Holdings (3.83)

Citicorp will focus on leveraging the competitive advantages of the company’s global universal bank in more than 100 countries, and is anticipated to have assets of approximately $1.1 trillion and will be approximately 65 percent deposit funded.

Citi Holdings will be made up of "non core businesses": brokerage and retail asset management, local consumer finance and a special asset pool, whose management will focus on tightly managing risks and losses, and maximizing the value of these assets The moves confirm numerous media reports of such a split. Citi CEO Vikram Pandit said, "Given the economic and market environment, we have decided to accelerate the implementation of our strategy to focus on our core businesses. This will help in our ongoing efforts to reduce our balance sheet and simplify our organization, which will enable us to better serve our clients and customers in both businesses without disruption. In light of the opportunities we see in the market today, we believe this new structure will provide a wide range of options going forward to continue strengthening our core franchise.
* * * * *

06:12 C Citi and US government reach definitive agreement on loss sharing program first announced in Nov (3.83)
The agreement provides details on that first reached on 23-Nov. The covered asset pool includes $301 billion of assets, including loans and securities backed by residential and commercial real estate, consumer loans and other assets as agreed by Citigroup and the government. The covered asset pool does not include any hedges. The loss coverage period is 5 years for non-residential assets and 10 years for residential assets.
* * * * * end

Both results were pretty dismal.  Bank of America realized late in November that conditions deteriorated rapidly at Merrill Lynch. They sought and got cash from the Fed so that they could conclude the deal as the Fed decided that they did not want another Lehman Brothers fiasco on their hands.

 

The Government also announced the definitive agreement with Citibank on loss sharing.  Citibank decided that they were going to split their company into two bankrupt entities:  a good bank and a bad bank. I wonder how the bond holders are going to react?  And what about their credit default swaps?   This will not fly!

Then he heard from GE.  It seems that this entity is also in trouble and that they are going to layoff 11,000 employees:

GE Capital May Target Up to 11,000 Jobs This Year

Jan. 16 (Bloomberg) -- General Electric Co.’s finance arm may cut 7,500 to 11,000 jobs, or at least 10 percent of its workforce, because of the global financial slump, people familiar with the company’s plans said.

The reductions are part of GE Capital’s announced plan to reduce expenses by $2 billion this year, said the peoplewho didn’t want to be identified because the numbers aren’t public. The savings goal also includes expenses such as office closings.

http://www.bloomberg.com/apps/news?
pid=20601087&sid=aTQmir5Nn9PM&refer=home

end

This was no surprise:  industrial production dropped a huge 2% in December as the economy was contracting big time:

U.S. Dec industrial production drops 2 pct

WASHINGTON, Jan 16 (Reuters) - U.S. industrial production dropped by a bigger-than-expected 2 percent in December, Federal Reserve data showed on Friday, capping a dismal year for manufacturing as the recession took hold.

Economists polled by Reuters had expected a 1 percent decline in December after a revised 1.3 percent drop in November, initially reported as a 0.6 percent dip.

For the fourth quarter as a whole, total industrial production fell 11.5 percent at an annual rate.

Compared with December 2007, industrial production was down 7.8 percent.

Capacity utilization fell to 73.6 percent, which was 7.4 percentage points below its average level from 1972 to 2007.

end

From Bloomberg at 3:45 in the afternoon:

03:45 Unintentional nationalization may be pending for US banks - NYT
Losses, particularly for Citi (C), have become so large that it will be almost mathematically impossible for the government to inject enough capital to save large banks without taking a majority stake or at least squeezing out existing shareholders. Recall that Fed Chairman Ben Bernanke warned earlier this week the government has no choice but to put more money into banks. Analysts say TARP gives too many ways for real problems at banks to be concealed from shareholders and taxpayers. The ideas of a government wrap and creating a government-backed bad bank would protect common stockholders from being wiped out.
Reference Link (registration required)
end* * * * *

Note only are banks in the usa in trouble but  look at banks in Europe:

Bill
It is beginning to appear that it is not just some of the US banks who are in slight trouble, but also now again in Europe.

The interesting thing is that there appears to be a trend in that the smaller banks were the first to become distressed, but now we are seeing the problem feeding back through the chain to some of the larger players like Barclays ?

http://uk.news.yahoo.com/22/20090116/tts-uk-barclays-shares-a8bf950.html

Barclays shares closed down 25 percent at 98 pence, its lowest level since 1993.

Royal Bank of Scotland fell 13 percent to 34.7p and Lloyds TSB lost 4.9 percent to end at 98.4p. HSBC was down 2.2 percent at 535.75p

……

Barclays shares have crashed 45 percent this week.   end

Barclays  stock has been plummeting.  It crashed 45% this week alone.  Last month it was 8 pounds.  Today it is 98 pennies.  Look at Royal Bank of Scotland at 35 cents and Lloyds at 98 cents.  Only HSBC  is trading better than a pound at 5.35 pounds.

California is close to bankruptcy:

California facing immediate bankruptcy

William Thomas Cain/Getty Images

California Gov. Arnold Schwarzenegger said on Thursday the state "faces insolvency within weeks" and he will put new policies on hold until there is a deal to close the budget gap, which will top $40 billion over the current and next fiscal year. "It doesn't make any sense to talk about education, infrastructure, water, health care reform and all these things when we have this huge budget deficit," Schwarzenegger said in his annual state of the state speech. The Republican governor and Democrat-led legislature are at adds over how to fill the current year's budget shortfall and are poised for a struggle to balance the budget for the state's next fiscal year, which begins in July. "The reality is that our state is incapacitated until we resolve the budget crisis," Schwarzenegger said. "The truth is that California is in a state of emergency," he added. "Addressing this emergency is the first and greatest thing we must do for the people. The $42 billion deficit is a rock upon our chest and we cannot breathe until we get it off." - Reuters

End..

The stock market rose by 68 points yesterday . Usually it rises on option expiry.  However the financials did not participate.  JPMorgan fell to 22.81 after hitting a low of 20.75 early in the session.  Citibank closed on its low at 3.47 which is not a good sign.  Bank of America fell into the low 7’s after a big spike early in the session to $9.30 as the market initially liked the rescue.  On reflection, everyone decided to sell.

 

ON Thursday, Nouriel Roubini stated that the banking sector needs 2 trillion dollars to replenish their losses in the usa.  They have already recorded 1 trillion of losses so the losses from the subprime, credit card and commercial losses at the banks will total 3 trillion dollars.  And you can add potential losses of another 5-6 trillion dollars in derivative losses in the USA and Europe banks.

The banks need to get this junk from their balance sheet but if they do, their stock value is so low that the only alternative is nationalization.

While this is going on, the economy is faltering.  Unemployment is rising as Federal and State coffers go empty.

It looks to us that the deficit for 2009 for the usa will approach 2 trillion dollars.  You can add 1 billion dollars of stimulus for the Obama plan. This will cause 3 trillion dollars of printing as nobody or no country will buy the usa debt.

On top of that, China, Japan, Korea, Russia, will all sell their surplus dollar reserves to shore up their economies and deficits.  Expect a minimum of 1 trillion dollars to be cashed in  (out of 3.0 trillion). Thus a minimum of 4 trillion usa dollars will be added to the money supply.

 

The usa will have no choice but to monetize its debt.  All debt will be purchased with newly minted paper bills.

The Federal Reserve  in December announced a total of 8.5 trillion dollars in various facilities to help beleagured banks.  Approximately 3 trillion dollars has already entered banks but not loaned out yet.  Banks are still worried about their brethren.  If this 8.5 trillion gets out into the market place along with the 4 trillion of deficit paper bills we will have 16 trillion dollars of an increase in  money supply.  MZ is around 4 trillion dollars so this will be a 400% increase and will cause prices to hyperinflate big time, probably as high as 200-400% depending on the velocity of money transfer.

China  has no entered a phase of high inflation.  This will exasperate conditions in the usa and the rest of the world. I will download Decharbonnel’s paper during the weekend which will highlight this to you.
We could see huge price increases because of the China’s inflation problems.  The usa has exported most of its manufacturing overseas so there will be little the usa could do.

The usa is in a mess.

 

This is why gold surged on Friday.  The big boys are realizing the game is over.

 

Have a great weekend

Harvey.

 

 

 

 

 

Thursday, January 15, 2009

Jan 15.09 commentary...extremely important.

www.lemetropolecafe.com

 

Good evening Ladies and Gentlemen:

 

I am going to dispense with gold and silver news and just talk about the economy.

 

Early this morning we were greeted with this news from the Wall Street Journal:

 

US close to giving B of A billions more aid--WSJ

NEW YORK, Jan 14 (Reuters) - The U.S. government is close to pledging billions of dollars of additional aid to Bank of America Corp , the Wall Street Journal reported on Wednesday, making the bank the second to require a second round of emergency government aid.

Bank of America is struggling to digest its Jan. 1 acquisition of Merrill Lynch & Co, the newspaper said, citing people familiar with the situation. The bank's shares dropped more than 5 percent after hours, reaching their lowest level since 1991.

Merrill Lynch's losses in the fourth quarter were larger than expected, which spurred Bank of America to start talking to the Treasury. The terms of the government aid are still being finalized, and details are expected to be announced with Bank of America's fourth-quarter earnings, due out Jan. 20.

A possible deal would involve protecting Bank of America from Merrill's bad assets by capping the bank's potential losses from them.

Bank of America and Merrill Lynch together received $25 billion from the Treasury's Troubled Asset Relief program in October. Citigroup received the same amount in October, and another $20 billion of capital in November.

End

 

About a week ago we had heard that Bank of America was having trouble with its purchase of Merrill Lynch and that MER was going to lose over 20 billion dollars in the quarter.  I reported this to you.  Lo and behold we heard early this morning that Bank of America was going to renege on its purchase of MER.  The Fed upon reflection, realized that if the deal failed, then they will have another Lehman type of failure on their hands (considerable debt defaults to go along with massive layoffs).  Cooler heads prevailed and the Fed basically gave unlimited dollars to Bank of America to complete the deal.  Bank of America is already suffering with its takeover of Countrywide.  In September, Bank of America traded at around  50 dollars and today it fell to as low at 7.35 in early trading.

 

We are relatively confident that BAC will report that its wholly owned subsidiary lost 20 billion dollars this last quarter.  They will announce their results on Wednesday, I believe.

 

Holy Cow!!.  This was published an hour ago from Reuters.  Here is the article below:

 

 

http://uk.reuters.com/article/marketsNewsUS/idUKN1554425220090115

 

BofA furious with Merrill, Thain over losses - FT

Thu Jan 15, 2009 10:02pm GMT

Email |Print | Reprints

[-] Text [+]

NEW YORK, Jan 15 (Reuters) - Bank of America Corp (BAC.N: Quote, Profile, Research) executives were livid after uncovering heavy losses at Merrill Lynch & Co as it prepared to complete its purchase of the Wall Street bank, the Financial Times said on Thursday, without saying where it got the information.

It said that in December, after learning that Merrill's fourth quarter would be worse than expected, Bank of America sent lawyers to investigate whether results were so bad that it could break off the deal, invoking a contractual provision governing a "material adverse" change in Merrill's condition.

Bank of America then told the U.S. government it would cancel the deal unless it received government funds, and closed on Jan. 1 after a commitment was secured, the newspaper said.

The newspaper said the problems have caused strain between Bank of America Chief Executive Kenneth Lewis and former Merrill CEO John Thain.

A Merrill spokeswoman declined to comment and a Bank of America spokesman did not immediately return a call.

The companies announced their all-stock merger in the early morning on Sept. 15, after fewer than 48 hours of frenzied negotiations that saw Lehman Brothers Holdings Inc (LEHMQ.PK: Quote, Profile, Research) file for bankruptcy protection the same morning.

Bank of America is now blaming Merrill executives for glossing over the bank's problems ahead of the sale, the newspaper said.

At a press conference hours after the deal was announced in September, Lewis had said he was able to do due diligence on Merrill over that weekend with the help of private equity firm J.C. Flowers, which had already done a lot of this research.

Lewis also called the acquisition a "strategic opportunity" that another company might take if he did not. 

END

 

My goodness.  You can bet that the phones between the Bank of America and the Fed were burning the midnight oil for the past week.  I wonder if Bank of America shareholders have a claim against the Fed for forcing BAC to purchase MER? .

 

It is no wonder with such wonderful news, the Dow tanked early down by 200 points, and it stayed down for most of the day until the last hours of trading.  

 

However, before discussing the final trading hour, the next article to stun Wall Street was news that Citibank may be nationalized.  This is a euphemism for bankruptcy protection.  This news came out at around 8 am:

 

Rumors in FX market that Citi will be nationalised over the week end.

Naturally the nationalization rumor about Citi is even more reason for the dollar to rally (Orwellian terms) and why the US intervened to makes sure it did so.

Then shortly after the Citibank rumour, JPMorgan announced its earnings. They were dismal.

JPMorgan Profit Drops 76 Percent on Asset Writedowns

Jan. 15 (Bloomberg) -- JPMorgan Chase & Co., the second- largest U.S. bank by assets, said profit fell 76 percent as rising defaults and the U.S. recession forced the bank to write down $2.9 billion of assets and boost reserves for bad loans.

Fourth-quarter net income was $702 million, or 7 cents a share, compared with $2.97 billion, or 86 cents, a year earlier, the New York-based bank said today in a statement. That included a $1.3 billion gain from closing a joint venture and "risk- management results," the company said. Without the gains, JPMorgan lost 28 cents a share….

http://www.bloomberg.com/apps/news?
pid=20601087&sid=aJnpIea7sSZQ&refer=home

If you recall, Morgan advanced its results by 5 days to release this news.  The market initially rejoiced by sending JPMorgan up to 27.00 even though the rest of the market tanked.

Upon further reflection, the market realized that something was wrong and JPMorgan began to tank falling to around 24.00 at 10 o’clock.  The cartel did not want to see their poster boy in trouble, so JPM was periodically rescued throughout the day.

Now to the final 1 hour of trading and how the dramatic events unfolded.  The Dow made a patented hail mary as word came out that the Fed was going to rescue BAC to the tune of 200 billion dollars plus :

14:45 BAC Bank of America to get Citi-type deal involving guarantees from government, reports CNBC (9.02 -1.18)
Size of the government guarantees on bad loans will be between $100-$200B, smaller than the $300B guaranteed in the Citi deal. BAC will also get additional funds from the TARP, as has previously been reported.

End.

 

The Dow did a u-turn and went from negative 150 points to positive 90 points. 

As the Dow was rising, JPMorgan started to nosedive.  It fell from 25.50 all the way down to 23.75.  It closed at 24.34 down 1.57 on the day.  Citibank upon seeing JPMorgan in trouble, joined in the fray and saw its stock tank by 70 cents all the way down to 3.83.

 

Bank of America which initially rose on the news retreated to where it traded most of the day:  down by 1.88 to 8.32.

The announcement caused Wall Street to celebrate and yet Bank of America, who was the primary recipient of the good news, actually fell.  I guess that is par for the course on Wall Street. 

And now for other economic news:

 

The jobless claims came out at 8:30 and they also stunned the street with higher claims:

08:30 Jobless claims for week ended 10-Jan reported 524K vs. consensus 503K
Prior week revised to 470K from 467K. Continuing claims for week ended 3-Jan reported 4.497M vs. consensus 4.620M. Prior week revised to 4.612M from 4.611M  end

The NY manufacturing report was released.  This is known as the Empire Manufacturing Index.  It was pretty bad but not as bad as the month before.  Here is the report;

08:30 Jan Empire Manufacturing reported (22.2) vs. consensus (25)
Dec figure revised to (27.88) from (25.76)
* * * * *

NY Fed manufacturing rout eases but still dire

NEW YORK, Jan 15 (Reuters) - Manufacturing production in New York State shrank for a fifth straight month in January but the pace of contraction eased a bit, according to a survey from the regional central bank.

The New York Federal Reserve's Empire State factory index rose to a still anemic -22.20 this month, up from a downwardly revised -27.88 in December. Omens about the future were no better.

"The future general business conditions index, along with a number of other forward-looking indicators, fell below zero for the first time in the survey's history," the report said.

The survey found that firms see their workforces shrinking by 2.4 percent on average in the coming year.  end

The Philadelphia manufacturing index was released at about the same time. It was as bad as the Empire index:



NEW YORK, Jan 15 (Reuters) - Factory activity in the U.S. Mid-Atlantic region contracted in January but less severely than expected, a survey showed on Thursday.

The Philadelphia Federal Reserve Bank reported its business activity index at minus 24.3 after a reading of minus 36.1 for December.

Any reading below zero indicates contraction in the region's manufacturing sector. Economists had expected a result of minus 35.0, according to the median of 54 forecasts in a Reuters poll which ranged from minus 41.3 to negative 23.7.

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

-END-

Commercial paper is still not flowing:

REUTERS US COMMERCIAL PAPER OUTSTANDING FALLS $45.8 BLN IN WK ENDED JAN 14, VS $83.1 BLN RISE PRVS WEEK-FED

REUTERS US ABCP OUTSTANDING DOWN $8.4 BLN IN JAN 14 WEEK, VS $46.3 BLN RISE IN PRVS WK -FED

REUTERS US COMM PAPER OUTSTANDING $1.719 TRLN WK ENDED JAN 14 VS $1.764 TRLN PREVIOUS WEEK -FED

REUTERS US ABCP OUTSTANDING $771.2 BLN WK ENDED JAN 14 VS $779.6 BLN PREVIOUS WEEK -FED

REUTERS US UNSECURED FINANCIAL ISSUANCE DOWN $19.2 BLN WEEK ENDING JAN 14, VS $400 MLN RISE PREVIOUS WK-FED.

It means that banks still do not trust one another.  I guess with today’s news on the 3 major banks in the usa who could fault them!!

The ECB as expected, lowered interest rates down to 2%

07:45 ECB lowers benchmark interest rate by 50bps to 2.00%
The move was as expected. - SA London
* * * *

There is so much for you to digest tonight.  Needless to say, the 3 major banks have imploded.

Eric deCharbonnel has a great paper on Chinese Hyperinflation that is still in draft mode.  I will post the article to you when the final copy is ready as it is a must read!

See you on the weekend.

Harvey.

 

 

 

 

 

 

Wednesday, January 14, 2009

Jan 14.09 commentary.

www.lemetropolecafe.com

 

Good evening Ladies and Gentlemen:

 

The Dow and Nasdaq were clocked today so the cartel found it necessary to continue whacking gold.  Gold fell by 12.00 to 808.00.  Silver retreated by 17 cents to 10.46 falling below the 10.50 resistance line.  Open interest on both silver and gold remained constant despite their fall yesterday.  It is obvious that the entire selling was shorting.

 

Charles Gasparino of CNBC commented that the banks are in serious trouble.  He indicated that all the major banks have been taken in the Fed.  Here is the link:

 

On a related gold topic, CNBC’s Lawrence Kudlow was ranting today that Citigroup has been nationalized by the US Government. Commentator Charles Gasparino stated that all the major banks have been taken in by the Fed. He said that is what he learned from working his beat EVERY day. This fits right into the info MIDAS has reported for over a month about JP Morgan Chase.

The major shorts are the major US banks. The government wants the price of gold down more than ever. As Andy notes on Citigroup…

$350 billion of government backing, and still it is about to hit its all-time low.

Could a too big to fail company actually fail, just a month after being saved?

Of course, this is very bearish for gold and bullish for the U.S. dollar and Treasuries. 

The ECB announced its gold sales and they were negligible:

 

From a late addition to MIDAS last night…

"The ECB Consolidated financial statement reported an E22Mm (1.1 tonne) reduction in "gold and gold receivables" said to reflect "the sale of gold by one Eurosystem central bank". As usual recently, this is far below the 9.6 tonne level notionally required to meet the average WAG2 sale level (last week's total was 0.95 tonnes). Such a trivial amount once again raises the question of could this be just ill-judged option commitments triggering off – masking a more passive attitude to current sales."

The low ECB central bank sale numbers are striking. It is this central bank gold that is required to meet the annual 1,000 to 1,500 tonne supply/demand deficit … with the real number most likely to be closer to the higher number. Last week’s ECB sale number was closer to the norm of weekly sales of late.

It tells us…

*The ECB banks are becoming more and more reluctant to part with the gold they have left.

*Someone else has stepped up to the plate to augment that decreasing sale number and we know it is not the producers because they have been decreasing their forward sale positions.

*The Gold Cartel seems to be the one only left to do selling in any kind of size. They are the culprit. Only the nitwit gold industry, led by the World Gold Council, could watch the obvious and remain silent about the most important factor of their business.

Libor continues to fall.  Today it is 1.08%,  However lease rates for gold also fell to .77% for 3 months.  The lending arteries are becoming unclogged.

 

With the Dow dropping by 248 points today, the banking sector suffered:

 

The Muppets on CNBC appear to be stunned by the renewed stress in the banking sector, especially after such a massive infusion of bailout money. Café members are not, as the MIDAS notion of TOO BIG TO BAIL is beginning to gain some traction here and there.

*Bank of America (BAC) made new LOWS ($10.20, down 45 cents)
*Citigroup (C) appears to be disintegrating as it fell below 5 again ($4.53, down $1.57).
*JP Morgan (JPM) fell again, after a frantic rally yesterday due to nothing except they are going to report bad news tomorrow earlier than expected ($25.91, down 44 cents)

This started Wall Street on the wrong side of the bed…retail sales plummeted last month:

 

U.S. retail sales slump 2.7 pct in Dec

WASHINGTON, Jan 14 (Reuters) -Sales at U.S. retailers fell at a steeper-than-expected rate in December, government data showed on Wednesday, as a deteriorating economic environment forced consumers to cut back on spending during the key holiday period.

The Commerce Department said total retail sales fell 2.7 percent to a seasonally adjusted $343.2 billion last month following a revised 2.1 percent drop in November, previously reported as a 1.8 percent decline.

December's drop was the biggest since October last year when sales fell 3.4 percent. For the whole of 2008, sales eased 0.1 percent, the department said.

Excluding motor vehicles and parts, sales were down a record 3.1 percent after a revised 2.5 percent decline in November, previously reported as a 1.6 percent drop, the department said. Total sales, excluding autos, rose 3.0 percent in 2008.

Analysts polled by Reuters had forecast December retail sales falling 1.2 percent. Excluding motor vehicles, sales had been predicted to drop 1.3 percent.

Gasoline sales tumbled 15.9 percent after diving by a record 18.3 percent in November  end

 

This was a surprise:  mortgage refinancing fell.

07:01 MBA mortgage purchase applications index (14.1%) in 9-Jan week; market index +15.8%
Compares to +7.3% and (8.2%), respectively in prior week. The refi index was +25.6% vs. (12.3%) in the prior week. The 30-year fixed rate declined 18bp to 4.89%. The 15-year fixed rate declined 3bp to 4.63%.
* * * * *

 The Fed released its beige book on their FOMC meeting in December.  The economy is dismal:

 

14:00 Beige Book reports economic activity weakened further in the past month
* * * * *

Fed's Beige Book-US economy weakened through Dec

WASHINGTON, Jan 14 (Reuters) - The U.S. economy continued to weaken into the first days of the new year, as labor markets slumped, housing markets sagged, and manufacturing slowed, the Federal Reserve said in its Beige Book report on Wednesday.

The report, gathered from respondents in the 12 Fed districts through Jan. 5, portrayed a gloomy economic scene, and suggests the Fed may need to implement further measures to thaw frozen credit markets and restore lending.

Retail sales were generally weak during the holiday season, despite deep discounting in most areas, the Fed said.

This is bad:  (it caught Wall Street flatfooted)

Financial Crisis Hits Home-Loan Banks

Cooperative Lenders May Need to Tap a Treasury Credit Line; Trouble Brewing in Seattle

By JAMES R. HAGERTY

The Federal Home Loan Bank of Seattle said it expects to fall short of one of its capital requirements because of a continuing drop in the value of certain mortgage-backed securities.

The warning is the latest sign of the risk that the federal government may have to prop up some of the 12 regional home-loan banks, a vital source of funding for thousands of banks across the country, particularly small, local institutions. In September, the Treasury established a credit facility for the home-loan banks in case they have trouble raising money through their regular global debt sales. So far, they haven't tapped that Treasury line.

It's "quite possible" one or more of the home-loan banks will need to use the credit line, said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a research firm in Washington.

Chartered by Congress in 1932, the home-loan banks are cooperatives owned by more than 8,000 commercial banks, thrifts, credit unions and insurers. They make loans to the institutions that own them, with collateral frequently consisting of home mortgages or related securities.

Investors generally assume the U.S. government would rescue the home-loan banks in a crisis. As a result, they have long borrowed on favorable terms in global bond markets. Their funding costs have risen recently as investors shy away from all kinds of risk, however. As of Sept. 30, they had combined borrowings of about $1.3 trillion, making them one of the world's biggest debtors.

The Seattle bank said it is likely to fall short of its risk-based capital requirement as of Dec. 31, 2008. The Federal Housing Finance Agency, or FHFA, which regulators the home-loan banks, requires them to hold capital sufficient to cover estimated credit, markets and operations risks.

Home-loan banks that fall short of capital requirements are barred from paying dividends or buying back certain kinds of stock. That can crimp the finances of local banks that depend on the dividends or want to redeem their stock in the home-loan banks. Because of previous financial woes, the Seattle bank hasn't repurchased Class B stock since 2004 and recently announced it wouldn't pay a dividend for the fourth quarter. Some other home-loan banks also have restricted repurchases of stock to preserve capital.

In all, the 12 home-loan banks own $76.2 billion of so-called private-label mortgage securities, those not guaranteed by Fannie Mae, Freddie Mac or the U.S. government, according to Moody's Investors Service. As of Sept. 30, the banks had recorded $13.5 billion of unrealized losses on these securities. That compares with total capital at the banks of $57 billion as of that date.

The banks generally argue that they plan to hold these securities until maturity and don't expect huge losses on them. But accounting rules require them to mark the securities to current market value at a time when very few investors are willing to buy private-label mortgage securities. If the drop in value is deemed "other than temporary," the banks need to record losses that eat into their capital.

-END

Moodys reported today that they expect 12 % of  Junk Bond issuers  to default in 2009: my goodness!!!

 

Moody's sees 12% of junk bond issuers defaulting by year-end

Dave from Denver notes…

it will be AT LEAST that high. one thing every single analyst and talking head is overlooking is the massive amount of LBO sitting on bank balance sheets. my buddy who used to work at LEH has a direct call into that area via bankers on Wall Street. Not only that, a lot of highly levered private equity bank debt deals had performance puts structured into them, and the banks are going to be taking back billions of LBO paper from investors this quarter. this is all very factual and ignored by all….

-END




In other developments, DeCharbonnel of Market Skeptics noted that the Bank of China  (Central Bank) has increased the money supply from 470 billion yuan to 740 billion yuan in one month.

 

Not only that, but the central government ordered the banks to loan. 

Judging from our figures, it looks like China is also selling its load of euro/dollar treasuries and buying infrastructure and commodities with the money.

The Baltic Dry Index has risen for the last 7 days and goods are starting to flow.

There is no question that China has started the hyperinflation cycle.

They will now try to export inflation to the rest of the world.

We may have hyperinflation in weeks.

 

 

You can google:  market sceptics

Or deCharbonnel, Eric and you will see all his articles.

 

IMPORTANT NEWS:

 

Larry Flynt of Hustler Magazine, the porno magazine head honcho is very disturbed that his readership has gone down significantly with the downturn in the economy.  His business is suffering so he wrote to Bush et al and asked for a bailout on this very important industry.

 

Speak to you tomorrow

Harvey.

Tuesday, January 13, 2009

Jan 13.08 commentary.

www.lemetropolecafe.com

 

 

Good evening Ladies and Gentlemen:

 

Gold closed unchanged today at 820.00.  Silver closed down 9 cents at 10.69.

 

The open interest on gold fell by 15000 contracts to 318000 with the huge fall in gold.  The bankers covered their shorts which is their modus operandi.

 

Silver’s OI fell by 127 contracts and its new OI is 87000.  This is why the cartel are having a tough time breaking down silver.  It refused to break 10.50.

 

The Libor 3 month usa closed down by 6 basis points to 1.09.  The lease rate also fell in sympathy down to .77% for 3 months.  The lending arteries are getting unclogged.

 

This was to be expected:  the trade deficit narrowed by 18 billion dollars to negative 40 billion.

Here is the article and I will explain its significance.

 

U.S. Nov trade gap shrinks on record import plunge

WASHINGTON, Jan 13 (Reuters) - The U.S. trade deficit shrank 28.7 percent in November, the biggest contraction in 12 years, as weak consumer demand and plummeting oil prices caused a record drop in imports, a U.S. Commerce Department report showed on Tuesday.

The $40.4 billion trade gap in November was the lowest in five years and much lower than expected. Wall Street analyst had expected the trade gap to narrow to around $51.3 billion, from a downwardly revised $56.7 billion in October.

U.S. imports in November fell a record 12 percent to $183.2 billion, as the global financial crisis scared businesses and consumers into cutting their spending.

Imports of both capital and consumers goods were the lowest since mid-2006, while auto and auto part imports fell to levels not seen since August 2003. Imports from China fell by a record $5.7 billion to $28.3 billion.

The average price for imported oil plunged a record $25.30 per barrel in November as recession fears deepened. Along with the drop in prices to $66.72, the average daily volume of U.S. oil imports fell 1.7 million barrels.

U.S. exports, in sign of global economic woes, fell 5.8 percent in November to $142.8 billion. Total U.S. goods exports were the lowest since June 2007, while auto and auto part exports were the lowest since October 2006.

-END.

You will note that imports fell by 12% to  183 billion.  Exports fell by 5.8% as well to 142.8 billion.

 

The dollar rose quite sharply on the news.  Nobody stopped to take a second look:

 

  1. the sharp drop in imports means the economy is faltering terribly.
  2. the sharp drop in exports means the usa economy is faltering. They cannot sell to anybody!
  3. the big drop in imports means there is less usa money to be recycled into treasuries.

 

Who on earth is going to buy usa bonds?

 

This is what Bill Holter has to say on this matter:

 

Bill H:

Correct me if I'm wrong

To all; we got news of a trade deficit that shrunk 28% from Oct. to Nov.. This drop of roughly $16 Billion spurred a sharp rally of the Dollar on the currency markets and has me scratching my head and saying, huh? Exports dropped by 5.9% and imports dropped by 12%. I look at this as evidence that the US consumer is retrenching faster than the rest of the world is, I also see this as foreigners now having 12% less Dollars to recycle into Treasuries. I could understand if the deficit fell because US exports were GROWING faster than imports, but this is clear evidence that the entire system is shrinking, and very rapidly indeed. Remember, these are November's numbers and Dec. was clearly in a steeper nosedive. Once we get past this initial manipulative spin on the Dollar, I believe sanity and mathematics will assert themselves.

This news is part of Jim Sinclair's formula, lower revenues that will spread across the board up to and including tax revenues to the Treasury. This Dollar rally looks beyond long in the tooth technically, fundamentally the bullet is aimed directly at the Dollar's heart. I view the current news as extremely Dollar negative and even more so for the stock markets, time will tell. Regards, Bill H. 

End.

 

The market was greeted this morning with this news from our Fed chairman who stated that the stimulus package will not suffice.  The usa needs more tools to fight the financial dilemma that it is facing:

 

08:07 Fed Chairman Bernanke says more government bank injections may be needed
Bernanke says the timing and the strength of the global economy is highly uncertain and says the Fed still has "powerful tools at its disposal" to deal with the financial crisis and economic weakness, including providing short-term liquidity to sound financial institutions, providing liquidity directly to borrowers and investors in the credit markets, and the purchase of longer-term securities by the Fed. Bernanke also discusses an 'exit strategy', describing how the Fed will have to unwind its lending programs, once the economy begins to recover, in order to improve control of the fed funds rate at that time. Bernanke argues for a stimulus package, but also stronger measures to further stabilize and strengthen the financial system.
* * * * *

The market rejoiced on this news early as the Dow instead of opening up down 100 points, opened up  12 points.  However it succumbed late in the day to close down by 25 points.

The usa just released their 3 month budget gap and it is not pretty.  The budgetary deficit is 486 billion dollars.

 

 

Three-month US budget gap exceeds FY 2008 full year

WASHINGTON, Jan 13 (Reuters) - The United States racked up a record $485 billion deficit for the first three months of fiscal 2009, exceeding the record $455 billion gap for all of the previous year, the U.S. Treasury said on Tuesday.

In December, the government posted a deficit of $83.62 billion versus a year-ago surplus of $48.26 billion -- a wide swing that the Treasury attributed to a steep drop in corporate tax receipts combined with outlays from its financial rescue fund.

The December budget gap was in line with consensus forecasts of an $83 billion deficit from economists polled by Reuters.

 

I was waiting for this:  Ohio becomes the first state needing funds because they had run out of unemployment insurance money.  Ohio got .5 billion dollars from the Fed:

 

Feds bailing out Ohio unemployment fund

The State of Ohio has been approved by the Federal Govt to borrow half a billion dollars to fund its depleted unemployment benefits fund:

http://republicbroadcasting.org/index.php?cmd=news.article&articleID=3022 I doubt that this number is in Obama's borrowing budget and I fully expect California to be the next State to borrow from the taxpayers for unemployment benfits, followed by many others. The entire economic/financial/Govt benefit system is slipping into collapse. Wish I knew where my benefits were coming from.

** end

The second state that will stand in line for handouts will be California.  The amt sought will be much greater than Ohio.   Probably 70% of the states will seek help from the Federal coffers.  It looks like a 2 trillion budgetary deficit will be upon us as the economy gets weaker by the day.

I will leave you with this piece from Ambrose Evans-Pritchard.  The article is self explanatory and well worth reading.  The first half is already in format for you to read.  If you want the whole article highlight the bold.

Ambrose Evans-Pritchard: Bond bubble is accident waiting to happen

Submitted by cpowell on 04:28PM ET Monday, January 12, 2009. Section: Daily Dispatches

By Ambrose Evans-Pritchard
The Telegraph, London
Monday, January 12, 2009

The bond vigilantes slumber. As the greatest sovereign bond bubble of all time rolls into 2009, investors are clinging to an implausible assumption that China and Japan will provide enough capital to keep the happy game going for ever.

They are betting too that debt deflation will overwhelm the effects of near-zero interest rates across the G10 and nullify a L2,000 billion fiscal blast in the US, China, Japan, Britain, and Europe.

Above all, they are betting that the Federal Reserve chief Ben Bernanke will fail to print enough banknotes to inflate the US money supply, despite his avowed intent to do so.

Yields on 10-year US Treasuries have fallen to 2.4 percent -- a level that was unseen even in the Great Depression. This is "return-free risk," said bond guru Jim Grant….

http://www.telegraph.co.uk/finance/comment/ambroseevans_
pritchard/4218210/The-bond-bubble-has-long-since
-burst-investors-ignore-this-at-you-peril.html

-END-

 

See you tomorrow

Harvey.

 

 

 

 

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