The slide in sterling has turned "disorderly".
We can argue over whether or not the first phase of devaluation acted as a shock-absorber for a badly mismanaged economy, providing a cushion against debt deflation and the housing crash. But the latest dive has a very malign feel.
For the first time since this crisis began eighteen months ago, I am seriously worried that British government is losing control.
The currency has fallen five cents today to $1.39 against the dollar. It is now perched precariously on a two-decade support line -- the levels tested in 2001 and 1992. If it breaks that line, traders may send it crashing down towards dollar parity.
The danger is blindingly obvious. The $4.4 trillion of foreign liabilities accumulated by UK banks are twice the size of the British economy. UK foreign reserves are virtually nothing at $60.6bn. (on this, more later in a piece I'm writing today)
If the Government is forced to nationalise RBS and perhaps Barclays with their vast exposure in dollars, euros, and yen, it risks being submerged. It is one thing for a sovereign state to let its national debt jump in a crisis -- or a war -- perhaps even to 100pc of GDP. It is another to take on foreign debts on such a scale with no reserves. Yes, the banks have foreign assets as well to match the debts. But how much are these assets really worth?
This is the moment when the "rubber hits the road" -- to borrow from American argot -- the moment when the reckless debt experiment of our economic and political leaders comes back to haunt.
We cannot even do what Iceland did to save its skin. Reykjavik refused to honour the foreign debts of its buccaneering banks. It let them default, parking the losses in Resolution Committees. Small islands can do that. Iceland has fish instead, and lots of metals.
Britain cannot follow suit. The debts are too big. If London takes such disastrous action it will set off global panic and lead to an asset death spiral, drawing the entire world into deep depression.
What have our leaders wrought? The reckless conduct of City, the fiscal incontinence of Gordon Brown (3pc deficit at the top of the cycle), and the pitiful regulation of the UK housing boom have all combined to bring the country to the brink of disaster.
England has not defaulted since the Middle Ages. There is a real risk it may do so now.
And no -- just so there is no misuderstanding -- it would not have been any better if Britain had joined the euro ten years ago. The bubble would have been just as bad, or worse, as Ireland and Spain can attest. We have our disaster. They have their disaster. When the dust has settled in five years we can make a proper judgement on the sterling-EMU issue. Not now.
The Baby Boomers have had their moment in power. The most spoilt generation in history has handled affairs with its characteristic hedonism. The results are coming in.
The blitherly idiots.. end
The situation in England is extremely dire. The entire banking sector has 4.4 trillion dollars of foreign debt with reserves of only 60 billion dollars.
How on earth can they nationalize the Royal Bank of Scotland, Lloyds, and Barclays?
Since this was written the pound is now down to 1.379 to the usa dollar. As in bank runs, when a country is in trouble its citizens flee its currency. The English and fellow Europeans have voted for the currency of choice and that is gold. They even ridiculed the Swiss authorities who announced that they are alarmed at the rise in the Swiss Franc and that they will print enough Swiss Francs to help their exports.. The Swiss citizens are also buying gold, who are joined by the Russians, the Chinese and just about everyone who suspects their paper money is just paper.
And now for the Gold and the Day's Economic events:
Gold closed up by 37.00 dollars to 895.70 and continued in the access market closing a touch below 900.00. Silver languished early in the session as the cartel tried to halt gold's rise by leaning on silver. That too failed as silver finally ralllied to close up by 58 cents to 11.93. I would like to add that the comex volume on gold was huge. The opening on the comex saw 95000 contracts trade and by the end of the day, the total estimated volume was 195000. They are generally 25-40% underestated all the time. This was a stampede into gold and the cartel wall of defence crumbled. They sought higher terrain at the 900 level and regrouped waiting for Monday's onslaught.
Oil also rebounded from a deficit of 2.00 to a rise of 2.50 to 46.70. Strangely this was all done with the dollar strong.
We thus had Europeans and the English all at once deciding to vacate their respective currencies in favour of gold, silver and oil. They did not want the usa dollar as they knew full well that it too is toast.
This email came to our headquarters:
Another thought … this is somewhat self-serving in terms of analysis, but I think my long-held view that was has occurred in the US financial market world (and spread to other countries in Europe, etc.) is TOO BIG TO BAIL ... and that growing realization has began to freak out some serious folks in the investment community. Received this email just now…
["FWIW: My broker just advised he had a one hour in house conference call today that was to all RBC brokerage offices.
It was headed by the Chief Economist/Strategist at RBC.
The call my broker said was like hearing a description of Armaggeddon.
Power Points: The U.S. Banking System is close to collapse.
BAC and C are going to go to ZERO.
Anytime their will be a call from President Obama for what is called "Scram Down Legislation" for the immediate Nationalization of these major banks.
The fellow speaking, a George Cassidy said EVEN holders of Preferred Stock will be wiped out.
Mr.Cassidy felt this blockbuster "Scram-Down" Legislation is coming, and damned soon. Max"]
We are hearing problems at both Citibank and Bank of America. Bank of America is the largest usa bank, followed by number 2 Citibank.
Many depositors are fearing a run on the bank so they are bailing. Where are they going? USA citizens have a real dilemma on their hands as the entire financial apparatus has imploded. In other words Ladies and Gentlemen: GET READY FOR OUR LONG AWAITED BANKING HOLIDAY.
I am on this one and will let you know shortly:
Some even more catastrophic news IS likely to surface next week. I have heard of smoke from a different source in that regard. My hunch is that "smoke" is what led to the retreat by The Gold Cartel today.
Strangely, the open interest on gold and silver did not rise appreciably on Thursday. This was due to some cartel members vacating the steam room. It was getting a little too hot for them.
The GLD just reported their gold inventory and it rose to 819 tonnes almost 275% higher in inventory that the supposed inventory at the Bank of England.( It rose 13.4 tonnes in two days) The top 6 holdings of gold (supposedly) are as follows:
1.USA 8170 tonnes
2.Germany 3400 tonnes
3.IMF 3200 tonnes
4 France: 2500 tonnes
5. Italy 2400 tonnes
6.Switzerland 1100 tonnes
7.GLD 819 tonnes (private)
I would like to point out that the sponsors of the GLD are in serious financial trouble on both sides of the continent. First, Barclays is the guardian of the gold and has kept the gold at the Bank of England. Their stock is now trading in the pennies. They also have a huge shortfall in the stock vs inventory. In other words they have issued shares without the corresponding inventory of gold. The shortfall is 25% of outstanding stock. This is very serious. On top of this, we now find that 2 million oz of paper gold belonging to the GLD is housed at the comex.(eligible gold)
The sponsors on this side of the pond, State Street has seen its stock plummet by 68% this week as they announced huge losses on their holdings.
As many of you know from my previous commentaries, I doubt very much that the GLD has the inventory they say they do!!
Libor rates continue to climb instead of falling. The new libor rate is 1.17% climbing in a week from 1.089%.. Commercial paper continues to contract signalling banks around the world are reluctant to lend. Obama is going to have his hands full trying to get these guys to fork over dollars.
The FTSE retreated this week due to the following:
U.K. Economy Shrinks Most Since 1980, in Recession
Jan. 23 (Bloomberg) -- The U.K. economy shrank more than economists forecast during the fourth quarter in the biggest contraction since 1980 as the financial crisis crippled the banking industry and mired Britain deeper in the recession.
Gross domestic product fell 1.5 percent from the previous quarter, the Office for National Statistics said in London today. Economists had predicted a 1.2 percent drop, according to a Bloomberg News survey. The economy has now shrunk in two quarters, the conventional definition of a recession….
and this from Europe and Asia:
Stocks in Europe, Asia, U.S. Futures Fall; Samsung, Pfizer Drop
Jan. 23 (Bloomberg) -- Stocks declined around the world, driving Europe's Dow Jones Stoxx 600 Index to the lowest level in more than five years, as concern deepened the global economic slump will erode earnings.
Samsung Electronics Co. slid 4.1 percent after the largest maker of memory chips reported its first quarterly loss. Infineon Technologies AG, Europe's second-biggest semiconductor maker, sank 4.2 percent as its Qimonda unit filed for insolvency. Pfizer Inc. retreated 3 percent in early New York trading after the Wall Street Journal said the drugmaker is in talks to buy Wyeth…. end
The Dow fell by 45 points even though it was down 200 points early in the session. The cartel boys just did not want to leave the weekend of a too sour of a note.
As everyone knows, there has been a complaint filed by myself and others on the silver and gold manipulation at the CFTC. Don Jack (from Lerners LLP) and I have been in communication with the Enforcement Arm of the CFTC. You will find this section very interesting:
Silver investigation: Stakes are enormous
By Rob Mackinlay
If the US regulator’s current investigation into the silver futures market is looking at allegations of ongoing price manipulation it is the first of its kind – according to a former CFTC director of enforcement.
Previous Commodity Futures Trading Commission (CFTC) investigations have been into market manipulations that have already taken place. The potential for the current silver investigation to halt an ongoing manipulation could have significant implications for the price of silver.
Geoffrey Aronow, a partner at law firm Bingham McCutchen and Gregory Mocek a partner at McDermott Will & Emery, both former directors of the Division of Enforcement at the CFTC, said that the division would not be carrying out the investigation if there were not legitimate grounds for concern.
Aronow, who oversaw an investigation into manipulation of the global copper market in the late 1990s, said: "I don’t know if this is allegedly ongoing conduct that an investigation will stop. Usually, an investigation occurs after the behaviour stops and the price moves back to where it’s supposed to be in an 'unmanipulated' market."
"Usually what’s happened is that the conduct has stopped. The evidence that there was price movement back to a new equilibrium is in fact part of the indication that there may have been a manipulation. Usually the return to a 'normal' equilibrium is pointed to as further evidence that there was manipulation. Now I don’t know if that’s the argument here."
However the existence of long-term manipulation is an issue of contention in itself. Aronow said: "One of the things I will observe is that anyone who has looked at manipulation would say they [manipulations] can only be maintained over the short-term. So most of the time what you have are short-term manipulations. Prices spike and that becomes part of the investigation."...
The long bond continues to decline in price (rise in yield). This is JPMorgan's Achilles Heal!! Here is the link to this:
Another HUGE plus in the days and weeks ahead for gold is what is occurring in the longer dated Treasury vehicles. Even with crisis alerts going off this morning, the yield on the 10 yr T note rose to 2.62%, which tells us the realization of what the US is doing fiscally and monetarily (in order to save the system) is kicking in too. The quid pro quo for the Treasury and Fed’s actions is on the horizon (much higher US interest rates) which will accrue to gold and silver in the weeks and months ahead.
In summary, we have no seen a drastic deterioration in the state of affairs of England and in the usa. The English have guaranteed all depositors and yet all their major banks are broke. ( Only HSBC has it stock above 1 pound and yet these guys are in the fraud of silver manipulation, with their counterparts over here: JPMorgan.)
On this side of the pond, rumours swirl on the nationalization of Citibank and Bank of America because of insolvency!
The volatility on gold played havoc to the derivatives with respect to JPMorgan. They also are pulling their hair with respect to the falling bond prices. They are the largest derivative player in interest rates, and for that matter on all derivatives. JPMorgan has 168 trillion dollars in derivatives listed with the comptroller. Where there is smoke, there is fire.
I will report to you on Monday. If anything urgent comes, I will send it down