Saturday, January 31, 2009

Jan 31.09 commentary...extremely important

www.lemetropolecafe.com   and   UK telegraph   ambrose Evans Pritchard
 
Good morning Ladies and gentlemen:
 
As many of you know, there was an economic forum situated at Davos Switzerland where many of the great economic minds met trying to sort out the finanacial mess.  Ambrose Evans_Pritchard was there and he commented on the Chinese being very angry at the new Sec.Treasurer Geithner talking about China's currency manipulation.  It was reported that the premier has a stiff upper lip when he  talked to his  US counterparts.  Here is the article written last night:   by Ambrose Evans Pritchard
 
 
 
 
 
 
 
UK TELEGRAPH
 
 
 
 

 Turning the corner in the labryinthine corridors of the Davos nerve-centre, I ran smack into Chinese premier Wen Jiabao - followed by a regiment of retainers and senior offices in full regalia.

They have not quite adapted to the "sport" dress code of capitalism in Alpine retreat. Jeroen van der Weer - a Davos stalwart -  wears horrendous corduroy trousers (pink sometimes) with a 1950s-era Tyrolean woolly. I dread to think how they react to Swiss prices if they venture into the restaurants.

Mr Jiabao smiled at me benignly, but he is not in a good mood. Indeed, he is fuming over the remarks by US Treasury Secretary Tim Geithner that China was "manipulating" its currency to gain market share. Reports were circulating this afternoon in Davos that Mr Jiabao erupted into a tirade after lunch at the mere mention of Mr Geithner's name.

Mr Geithner - the first US Treasury chief who can actually speak Chinese, and Japanese, nota bene - is clearly operating under instructions from President Barack Obama. If his resolve fails, Hillary Clinton is there at Foggy Bottom (State Department) to renew the broadside against Beijing - at least judging by her Sinophobe reflexes in the campaign.

This has the makings of an almighty superpower bust-up. It is fast becoming the theme of Davos 2009. It may soon be the burning issue of our times. We will all learn how to pronounce Renminbi.

The Bush Administration -- in its day -- deflected all attempts by Congress to crack down on China's currency policy. Perhaps sagely, perhaps not.

There is no question that Beijing has pursued a mercantilist strategy of conquering US and European markets by holding down the yuan/renminbi.  It has a monthly trade surplus of $40bn, the highest ever recorded by any country. Or put another way, China is exporting its surplus capacity to the rest of the world. It has become a global deflation machine.

Even so, Mr Geithner is playing with fire. Beijing has amassed reserves of $1.9 trillion. From what we know, most of this money is held in the form of US Treasuries and other bonds. Creditors exercise power. Don't be fooled by claims that China could not deploy this weapon without damaging its own interests. All kinds of things can and do happen when tempers flare, and they were flaring today.

The IMF's chief economist Olivier Blanchard said it was unwise to "obsess" over the exchange rate in this fragile climate. "It is probably not the right time to focus on the Chinese exchange rate, given that it is not a central element of the world crisis. There are many other things we should be thinking about. It is an item on the list, but it is not at the top of the list."

Stephen Roach, head of Morgan Stanley Asia, offered a harsher verdict, calling it pure folly to pick a fight with Beijing. "The Chinese economy most likely contracted in final quarter of 2008 and most likely in this quarter too. China has hit a wall," he said.

"A country that is contracting doesn't take kindly to its major trading partners saying you have to increase the value of its currency. What they are being told to do is tantamount to economic suicide," he said.

Quite. This conflict needs to be handled with extreme care. There is a battle going on within the Chinese Communist leadership over currency policy.  A bloc within the central bank has long argued that China itself is the victim of a policy that fuels domestic inflation and leaves the country dangerously dependent on the goodwill of export markets.

Wen Jiabao,  speaking as I write, says that China's fiscal stimulus package of $600bn will be worth 16pc of GDP over two years. If so, that is huge. China is now doing its part to shore up the global system, even if he rather annoyingly continues to blame "low-savings" countries for the crisis - skipping over the role of Asia in stoking a credit bubble (Takes two to tango).

Be that as it may, China's fiscal blitz is the beginning of a shift in strategy that should - over time - start to boost domestic demand enough to eat into the trade surplus.

Mr Jiabao said it was "imperative that China and the US step up their co-operation". He pleaded with the West not to retreat into protectionism. Washington - and above all Capitol Hill -- would be well advised to listen.

Vladimir Putin speaks next.   END

 

China has over 1 trillion dollars of usa treasury debt.  I can assure you that the  Chinese are seriously contemplating liquidating all of its usa debt holdings to cover infrastructure spending on their side of the pond.

 

We are now hearing that major banks are predicting we will enter an hyperinflationary environment. Looks what Morgan Stanley has to say on the subject:

 

Hyperinflation is a possibility, say Morgan Stanley

Posted by Izabella Kaminska on Jan 30 10:38.

That’s not in Zimbabwe by the way.

Morgan Stanley’s Jocahcim Fels and Spyros Andreopoulos look at the possibility of hyperinflation hitting the western shores of the UK, Europe and the US in their latest note. Their conclusion is a little scary (our emphasis)…

http://ftalphaville.ft.com/blog/2009/01/30/51876/hyperinflation-is-a-possibility-say-morgan-stanley/.

 

and this comment by Garic which completely supports the Morgan Stanley scenario:

 

Garic points out…

Notice that the traders are looking for the Fed to do a coupon pass to support the Treasury market. Combine that with the Morgan Stanley blog that hyperinflation risks grow as the government turns to a central bank to finance deficit spending. The fear of the next leg of the crisis starting is gaining momentum in the mainstream investment community. Whether this leg is a Treasury Bond crash, currency crisis or hyperinflation is unfolding. Given Ben Bernanke’s reckless monetary policy, I would expect the Fed to monetize the debt. I still believe risks of hyperinflation are way underestimated.

http://ftalphaville.ft.com/blog/2009/01/30/51875/pop/

 

Yesterday gold traded up by 21.00 to 925.50 and silver rose by 42 cents to 12.57.  This is the first time in many years that we saw gold and silver follow through from Thursday's outside day reversal.  The cartel could not attack the metals, so they hit the gold shares big time.  They tried to influence gold down by whacking the Euro but that was to no avail. Gold and silver advanced!  Most of the excitement is coming from England as many Britishers are selling their pounds and buying gold.  The usa is soaking up the pounds in support of its "financial sister".

I reported on the silver deliveries to you on Thursday.  Bryant also caught the significance: 

First :  his comments and then I will explain:

 

JP Morgan COMEX Silver Deliveries

Bill,
Thursday was the last day for deliveries for the January contract at COMEX. Action in gold was non eventful but in silver 503 contracts were delivered, 502 of which were by JP Morgan which is 2,510,000 ounces worth. For the month 2,105 silver contracts were delivered representing 10,525,000 ounces. Usually 80 to 90% of deliveries are on the first 2 or 3 days of the month, so to have 24% of the deliveries made on the last day shows the cartel is sucking wind. This is irrefutable proof that JP Morgan is the big COMEX silver short. March is the next large delivery month for COMEX silver. Based on the cartels struggle to deliver a minor 2,105 contracts in January (a minor month), March looks like it will result in a silver default. Regards,
Bryant

January is an off month and very few participate in these months.  Generally it is options exercised to get a contract that are fulfilled.

The previous high delivery for an off month was in October with over 5.5 million oz delivered upon. The month of January had 10.5 million oz delivered upon and 2.5 million came in the last 2 or 3 days.  JPMorgan was the supplier of the silver.

We are hearing many stories of 2 or 3 contracts that have massive delays in their deliveries for silver. I reported this to you yesterday, concerning the non delivery of January silver with respect to HSBC sale of silver to a purchaser.

 

Not only we witnessed 10.5 million oz of silver being delivered for January, but the first day of February saw delivery of over 1000 contracts or 5.0 million oz.

All points seem to point to the March delivery month where it will be impossible to handle all those deliveries.  This is why Bryant believes that March will result in a silver default.

And now for economic news: GDP figures for the quarter show a contraction of 3.8% of an annual basis. However inventories were up 1.8% as nobody sold goods.  Somehow this helps GDP. Here is the report:

 

US 4th-qtr GDP down 3.8 pct, biggest drop since '82

WASHINGTON, Jan 30 (Reuters) - The U.S. economy shrank at its fastest pace in nearly 27 years in the fourth quarter, government data showed, sinking deeper into recession as consumers and business cut spending.

The Commerce Department on Friday said gross domestic product, which measures total goods and services output within U.S. borders, plummeted at a 3.8 percent annual rate, the lowest pace since the first quarter of 1982, when output contracted 6.4 percent. GDP fell 0.5 percent in the third quarter. These were the first consecutive declines in GDP since the fourth quarter of 1990 and the first three months of 1991.

Analysts polled by Reuters had forecast GDP contracting 5.4 percent in the fourth quarter. The U.S. economy slipped into recession in December 2007, driven by the collapse of the housing market and resulting global credit crisis.

For 2008, GDP rose 1.3 percent, the slowest pace of growth since 2001, when the economy expanded 0.8 percent.

The advance report from the Commerce Department showed consumer spending, which accounts for two-thirds of U.S. economic activity, fell 3.5 percent in the fourth quarter after declining 3.8 percent in the third quarter, also the first consecutive drops since the last quarter of 1990 and the first quarter of 1991.

Spending on durable goods like cars and furniture plunged 22.4 percent, the steepest decline since the first quarter of 1987.

In response to the slump in demand, investment by business slumped 19.1 percent for the sharpest pull-back since the first quarter of 1975. Residential investment plummeted 23.6 percent.

The sharp economic downturn is putting a lid on inflation pressures, with the personal consumption expenditures price index plunging a record 5.5 percent after rising 5 percent in the third quarter. Excluding volatile food and energy items, core prices grew at a muted 0.6 percent, the slowest rate since the fourth quarter of 1962. Core PCE rose 2.4 percent in the third quarter.

Analysts polled by Reuters had forecast the PCE index falling 5.4 percent.

-END-

 

The Chicago Midwest report on Manufacturing for December was again pretty dismal.

 

U.S. Midwest business weakens again in January

CHICAGO, Jan 30 (Reuters) - Business activity in the U.S. Midwest contracted in January and at a more severe rate than expected, a report showed on Friday.

The Institute for Supply Management-Chicago business barometer fell to 33.3 from 35.1 in December, a new low for the current downturn. Economists had forecast the index at 34.0. A reading below 50 indicates contraction.

The employment component of the index fell to 34.8 from 39.2 in December. Prices paid rose to 39.8 from 32.7 and new orders slipped to 30.7 from 31.5.

The University of Michigan consumer sentiment was again down:

 

9:55 Jan Univ of Michigan reported 61.2 vs. consensus 61.9
Prior reading was 61.9.
* * * * *

 

This next report concerns the Bank of NY Mellon and JPMorgan.  It seems that they pulled out their own funds but left client money with Madoff.  When this was reported, they both decided to pony up 1/2 billion dollars so nobody would ask questions.  Here is the article:

Hi Bill.
This article on JPM and its Madoff connection is interesting.

We all know JPM has always had access to privileged information. To what extent does it abuse this privilege, even to the point of using "bait-and-switch" tactics on its own customers? And has JPM crossed one too many of those customers, such that Mr. Dimon et al. might be in the X-hairs, themselves?

The NY Times is finally asking questions to which you have long known the answers. We should expect much more to come.

BUSINESS | January 29, 2009
JPMorgan Exited Madoff-Linked Funds Last Fall
By CLAUDIO GATTI and DIANA B. HENRIQUES
Investors are criticizing JPMorgan Chase for not sharing its concerns about funds tied to Bernard L. Madoff

***

Hours later …. Caught and feeling guilty:

Banks Agree to Send $535 Million to Madoff Trustee

Jan. 29 (Bloomberg) -- Bank of New York Mellon Corp. and JPMorgan Chase & Co. agreed to transfer about $535 million in the accounts of collapsed trading firm Bernard L. Madoff Investment Securities LLC to Irving Picard, the trustee liquidating the brokerage.

Bank of New York agreed to transfer $301.4 million and JPMorgan agreed to transfer another $233.5 million, according to court papers filed today in U.S. Bankruptcy Court in New York….

http://www.bloomberg.com/apps/news?pid=20601087&sid=avcSeEXgs4Ew&refer=home

-END-

 

I am now coming to the key part of todays commentary.  Goldman Sachs yesterday stated that the banking sector will need 4 trillion dollars because of losses in the mortgage backed securities.  First the article:

 


Bank Bailout Could Cost Up to $4 Trillion: Economists
29 Jan 2009 04:35 PM

The cost of restoring confidence in U.S. financial firms may reach $4 trillion if President Barack Obama moves ahead with a "bad bank" that buys up souring assets.

The figure far exceeds even the most pessimistic estimates of how great the loan losses might be because there is so much uncertainty about default rates, which means the government may need to take on a bigger chunk of bank debt to ease concerns.

Goldman Sachs economists said ideally the public sector would step in to remove the hardest-to-value assets, which would alleviate nagging worries about future losses and hopefully help get lending going again.

"Unfortunately, with an unprecedented meltdown in mortgage credit and a deep recession in the broader economy, there is a great deal of uncertainty about the value of almost every asset," they wrote in a note to clients.

Obama and his economic advisers are expected to lay out their policy plan as early as next week. One idea that seems to be gaining traction is setting up an entity to buy troubled assets and hold them until they mature or resell them.

The hope is that once banks get rid of those bad loans, they can attract private investors, get back to the business of lending, and help revive the economy.

Vice President Joe Biden said Thursday that Treasury Secretary Timothy Geithner was considering all options to restart normal lending, but that no decisions had been made.

Goldman Sachs estimated that it would take on the order of $4 trillion to buy troubled mortgage and consumer debt. That number could shrink if the program were limited to only certain loans or banks, but it could also grow if other asset classes such as commercial real estate loans were included. (How much would it cost if we put Goldman and Morgan Stanley into receivership - Jesse)

New York Sen. Charles Schumer has said that a number of experts thought that up to $4 trillion may be needed to buy the bad assets, an estimate that a Senate aide said was based on informal conversations with people in the industry.

The Wall Street Journal said government officials had discussed spending $1 trillion to $2 trillion to help restore banks to health, citing people familiar with the matter.

At $4 trillion, that would be the equivalent of nearly 1/3 of U.S. gross domestic product. If the government had to fund that amount by issuing additional debt, it would intensify investor concerns about massive supply scaring off demand.

Depending on how the plan is structured, the government may not have to put up the full amount, and since the majority of people are still paying their mortgages and credit card bills, there is a reasonable expectation that taxpayers would recoup a substantial portion of the cost.

However, the potential loss is huge, and if more public money is needed to boost capital even after the bad assets are removed, the total would undoubtedly climb.

The International Monetary Fund said Wednesday that worldwide losses on U.S.-originated loans may hit $2.2 trillion, well above its October estimate of $1.4 trillion. It said banks in the United States, Europe and elsewhere probably needed to raise $500 billion to cover losses coming this year and next.

Cutting Out a Zero

For U.S. lawmakers who are already taking grief from voters over a $700 billion bailout approved last fall, passing another big spending measure carries significant political risk.

At the same time, Obama's team wants to take action that is bold enough to fix the problem once and for all, hoping to avoid the sort of ad hoc approach that has been criticized for adding to investor uncertainty.

Time is not on Obama's side. The more the economy weakens, the longer the list of potentially dodgy debt grows. That is why he faces enormous pressure from Wall Street to act fast.

The government would not necessarily have to spend the full $4 trillion to buy the assets. If it follows the model used in a Federal Reserve program to support consumer and small business loans, the government could potentially put up just 10 percent of the total.

Spending $400 billion would certainly be more palatable to Congress than $4 trillion. It may not even require that much additional funding. Economists estimate that perhaps $250 billion of what remains in the $700 billion bailout fund could be devoted to the "bad bank."

That money could buy bad assets, which would then be repackaged and sold to investors to raise more money which could then by recycled to buy more assets.

Stephen Stanley, chief economist at RBS Greenwich Capital, said although that sounds similar to the sort of financial engineering that spawned the credit crisis in the first place, it would be structured so that the central bank or whichever agency oversees the program is last in line to take losses.

"If things turn out so bad that the Fed ends up on the hook for $1 trillion in losses, then the financial sector, the economy, and everything else will be dead anyway," he said.  end

Discussion: (Harvey)

On Thursday, we discussed that the entire mortgaged backed securities, subprime, commercial and student loans was around 10.5 trillion dollars.  I told you that conventional wisdom on the street figured that 35-50% was bust or 3.5 to 5.6 trillion dollars of writeoffs.

Goldman Sachs has come right in the middle with a loss of 4 trillion dollars.

The Obama administration is now going to form a bad bank to buy these toxic assets.  I am going to numerically tell you the problems that they are going to face!!

The bad bank is going to purchase the toxic assets from the bank.  They will either pay too high for the stuff or too low.
Lets say they pay too high like 9 trillion dollars for the mortgage back securities leaving a loss to the banking industry of 1.5 trilllion dollars.  They have already written off 1 trillion, so an additional .5 trillion dollars will have to be absorbed.  The banks have retained earnings of around 1.2 trillion dollars so they will be underwater by a tiny fraction.  The banks credit default swaps (with respect to banks) will go to zero as the banks will be alive.
 
However, the taxpayers get shafted.  They will need to layout 8 trillion of dollars to purchase the stuff and end up with a probable loss of 4 trillion dollars.  While this is going on, the usa is still printing 4 trillion dollars because of deficits, the stimulus program and the cashing of foreign bonds.
The huge printing of paper money with no additional growth will cause the money supply to increase by 300% (Mz is now 6 trillion.  The additional 8 trillion plus 4 trillion makes 18 trilllion..thus 6 trillion to 18 trillion is a 300% gain).  Interest rates will skyrocket to compensate for this huge increase in paper money.  The result will blow up the derivatives at JPMorgan with respect to their interest rate derivatives.
 
JPMorgan has about 180 trillion of total derivatives with 10 trillion in credit default swaps. We believe that their interest rate derivatives are in excess of 120 trillion dollars.  The entire world as of Dec 07 had 680 trillion in notional derivatives but it is now believed that we have in excess of 1 quadrilllion.  Remember derivatives never contract they always balloon to a higher level.
 
Now, lets say they decide to get a great deal and buy the toxic junk for 2 trillion.  The losses to the banks will be 8.5 trillion dollars, which will bankrupt the banks, and then trip all of those credit default swaps.  The entire banking sector implodes!!
In England and Europe, the toxic mortgage values are approximately the same.  For example, England has losses so far of 1 trillion dollars and they have additional potential writeoffs of 3-5 trillion dollars.  Europe is a little less but still they are in a pretty bad precarious state.
 
England looks like a powder keg.  The bank of England has only 61 billion dollars worth  of foreign reserves yet all the UK banks have foreign liabilities in excess of 4.4 trillion dollars.  The Bank of England needs to monetize the UK banks but if they do the above, the pound sinks to oblivion as the bank  has no reserves.  The country falls like Iceland.
 
What is fascinating is the small level of gold and silver derivatives out there with respect to the total derivatives.  In Gold, the total derivatives is about 50,000 tonnes of gold or in dollars approx 1.2 trillion dollars.  In silver it is 2 billion oz of silver or in dollars around 40 billion dollars. It is  very small in comparison to the interest rates and other derivatives.  However it will play a major role simply because you cannot print silver and gold.
 
What is happening onver in Europe and England is simply  old rearguard investors know all to well that their money is toast and they line up every morning (3 am our time) to get whatever physical they can.  They are relentless and they are doing this 5 days a week. Gold will continue to rise until the comex and the LMBA defaults. I would like to point out that if the Bank of England takes over HSBC then the GLD fraud will be discovered, which in turn causes the LBMA to default and with the cross btw LBMA and Comex you will see comex default.
 
 
I hope this explais what is going on
 
Have a great weekend
Harvey.
 


Thursday, January 29, 2009

Jan 29.09 commentary....quite a doozy

Good Evening Ladies and Gentlemen:, 
 
Today we saw an outside day reversal in gold.  This is generally a rare event in which gold starts the comex on the negative side and then turns strongly positive throughout the day and finishes at its high.
Today gold closed up by 15.40 to 905.40 and silver closed up by 19 cents to 12.15. What is extremely strange today is gold and silver advanced despite the strong advance in the dollar  (and weekness in the Euro.)  We are seeing nations and private individuals seek Gold and Silver in a panic due to the deterioration in the global financial markets. 
However all outside reversals are hit by the cartel next day.  I believe it is 100% of the time.  The cartel, as a rule do not want to see excitement in silver and gold so they will kill outside reversals the next day.
 
And now for the economic events of the day: Wall Street was really shook up with this jobless report...a seasonanally adjusted jobless claim of 588,000 for last week.  The Dow started in negative territory and finished at its bottom down 226 points:
 
 

US new jobless claims up, continued claims a record

WASHINGTON, Jan 29 (Reuters) - The number of U.S. workers filing new claims for jobless benefits rose 3,000 last week, data on Thursday showed, while so-called continued claims hit the highest level on record as a year-long recession chilled
employment.

Initial claims for state unemployment insurance benefits increased to a seasonally adjusted 588,000 in the week ended Jan 24 from a revised 585,000 the prior week, the Labor Department said.

Analysts polled by Reuters had forecast 580,000 new claims versus a previously reported count of 589,000 the week before.

-END-

 

Further economic News:.  You will notice orders for big ticket items are falling faster than a speeding bullet.  Why?  banks are not offering any credit.  Durable goods fell for the fifth straight month:

U.S. durable goods orders fall 5 straight months

WASHINGTON, Jan 29 (Reuters) - New U.S. orders for long-lasting manufactured goods dropped 2.6 percent in December, falling for a fifth straight month, according to a report on Thursday that underscored the deepening economic malaise. 

Durable goods orders for November were revised to show a decline of 3.7 percent, the Commerce Department said, which was previously reported as a 1.5 percent fall. For 2008, overall orders tumbled 5.7 percent, the second biggest decline since 2001, after rising 1.3 percent in 2007.

New orders excluding transportation dropped 3.6 percent in December, but transportation equipment rose 0.6 percent, while motor vehicles and parts plunged 5.2 percent.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 2.8 percent in December. The previous month was revised to show a 1.7 percent increase, from a 3.9 percent rise reported before.

Analysts polled by Reuters had expected overall orders to fall 2 percent in December, and ex-transportation to drop 2.7 percent.

-END-

Again, home sales continue to fall to record lows.  Remember this is used as collateral by the banks.  Their collateral continues to plummet!!  Here is the article on home sales:

Home sales fall to record lows

WASHINGTON (Reuters) - Sales of newly built single-family homes fell 14.7 percent in December, the largest monthly decline since 1994, data showed on Thursday, indicating the housing market's downward spiral was far from reaching a bottom.

The Commerce Department said sales tumbled to a 331,000 annual pace, the lowest since it started keeping records in 1963. November's sales were sharply revised down to 388,000 annual rate, which was previously reported as 407,000.

Economists polled by Reuters had forecast sales would post a 400,000 rate in December. For 2008, sales totaled 482,000, the lowest since 1982. That represented a 37.9 percent drop on the prior year, also a record fall.

The median sales price in December fell 9.3 percent to $206,500 from a year earlier. The median marks the half-way point, with half of all houses sold above that level and half below.

The inventory of homes available for sale was at 357,000. The December sales pace put the supply of homes available for sale at 12.9 month's worth was a record high.

-END

OK.  This just came in from the Wall Street Journal.  They are now talking about how the new bad bank is going to be financed.  As far as I am concerned, they have no chance.  The only way that the banks would be saved is that they pay a high price for the toxic junk.  The taxpayer will be left holding the bag.  The republicans will not let this happen.

23:16 Next round of bank bailout could cost $1-2T - WSJ
People familiar with the matter say the Obama administration could announce plans within days but has not yet figured the exact shape of its new proposal, which will seek to fix banks without owning them. A national bad bank could be seeded with $100-200B of TARP money, with the balance coming from selling government-backed debt or borrowing from the Fed. The government is also considering purchasing banks' common rather than preferred stock, or buying convertible bonds. There is also discussion of insuring some assets against further losses, as the government did with Citi (C) and Bank of America (BAC). Recall the Washington Post reported many of these measures earlier (see 07:42 comment).
Reference Link (subscription required)

Libor continues to remain at the 1.17% and commercial paper continues to decline in quantum such that banks just cannot lend.  They have so many losses from mortgages and derivative failures that they just refuse to lend.

In yesterday's paper by Huges that I sent you, the author proved that the TARP money was used by the banks to purchase credit default swaps on every other bank.  They knew that every bank was insolvent so each and every bank bought credit default swaps on each other to make money. What a bunch of crooks!!

REUTERS US COMMERCIAL PAPER OUTSTANDING FALLS $98.8 BLN WEEK ENDED JAN 28 VS $30.3 BLN DROP PRIOR WEEK-FED

US ASSET-BACKED CP OUTSTANDING FALLS $7.2 BLN IN JAN 28 WEEK VS $22.2 BLN DECLINE PVS WEEK

 
 Our good friend Jessie received information that the UK may be forced into nationalization all its banks in the next two weeks. This was highlighted to you by Ambrose Evans-Pritchard in two articles that I downloaded for you.  England has losses comparable to the usa of approximately 1.6 trillion dollars.  However its GDP is 2.2 trillion as opposed to the usa GDP of 14 trillion.  The bank of England has only 61 billion dollars worth of reserves and yet all its banks have foreign liabilities in excess of 4.4 trillion dollars.  England is basically bust and the banks will need to be nationalized.  However the country could see the pound devalue by 50% because of their huge external foreign debt.
Here is the relevant passage:   
 
Jesse received word from a good source that people in the London banking community believe that the UK may be forced to nationalize the big banks over there in the next 2-3 weeks. While there's no way to verify how good the source of info is, usually where there's smoke, there's fire. With regard to the guy who is waiting for his 2 bars of silver to be delivered from HSBC, if there's any validity to these rumors, not only may he never see his silver, he may have delays in getting his cash back. Bill, if I were you, I would email the guy who wrote in and advise him to get his warehouse receipt from his broker and fly to NY and go to HSBC's storage facility with that warehouse receipt and personally get his bars. I'm actually serious about this.
 
Some big problems for JPM today: The long term rates are rising so fast.  The huge volatility is killing the derivatives and JPMorgan has the worlds largest supply of derivatives in the world in excess of 175 trillion dollars.  The rise in rates is killing them:
 
The yield on the 10 yr note rose sharply to 2.85%, as investors realize the quid pro quo for all the bailout money will be much higher interest rates down the road … higher interest rates due to inflation, which will further fuel demand for physical gold and silver.
 
There was some further problems with the treasuries in todays auction:  The auction for 30 billion 5 year notes went poorly today.  This does not bode well for the usa dollar as the usa will need to auction of at least 1 trillion dollars in the next few months.  The world does not have the appetite for such a huge supply of debt paper.
Expect the usa to buy its own debt, or in other words, monetize its own debt.  This will be hugely hyperinflationary!!  Here is the important passage released this afternoon:

Treasuries Drop as Record Sale Draws Higher-Than-Forecast Yield

Jan. 29 (Bloomberg) -- Treasuries plunged as the government sold a record $30 billion of five-year notes at a higher yield than forecast, indicating weak demand.

The auction, which caps a week when the Treasury raised $78 billion in notes and bonds, may signal investors will have trouble absorbing the as-much-as $2.5 trillion in debt the U.S. is likely to issue this year to pay for a $1 trillion budget deficit and programs to spur the economy. The Federal Reserve’s failure to provide a timetable for possible purchases of Treasuries yesterday also weighed on prices.

"We’re seeing a bit of indigestion," said Larry Dyer, a U.S. interest-rate strategist with HSBC Securities (USA) in New York, one of 17 primary dealers that are required to bid in Treasury auctions. "It’s a mini bear market, and we’re underwriting in it."…

http://www.bloomberg.com/apps/news?pid=20601103&sid=aWp43_YA6k3E&refer=news

-END-

I want to highlight the plight of GLD for you.  As many of you know, I strongly believe that GLD has no backing of gold.  In the following passage, one of our cafe members has done an in depth study on the indenture of the GLD in England.  He is of the opinion that if HSBC goes belly-up, the shareholder will get nothing as the assets may not be adequate to satisfy a claim by the Trust.  Please study carefully the following passage:
 
One more point to emphasize here, HSBC is the custodian of GLD. (I am using the S1 prospectus filed with the SEC on 11/16/04). If it is the case that GLD is leasing out the gold in GLD, and if HSBC were to go bust, the GLD Prospectus clearly states on page 13 that "gold held in the Trust's unallocated gold account and any Authorized Participant's unallocated gold will not be segregated from the Custodian's assets. If the Custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant. In addition, in the event of the Custodian's insolvency, there may be a delay and costs in incurred indentifying the bullion held in the Trust's allocated gold account." The unallocated gold accounts are the accounts used to hold gold being deposited into the Trust, or being redeemed from the Trust. That is not "segregated" from the Custodian's assets means that bars of gold are not specifically identified at gold that belongs to the Trust vs. assets that belong to HSBC. The prospectus further states that in the event of insolvency by HSBC, the Trust becomes an unsecured creditor of HSBC with respect to unallocated gold. Leased gold would either be held in unallocated accounts moving in and out of the Trust, or the physical gold might not even be in the Trust, as subcustodians as described below, could lease out the gold and no one would know or would have the legal ability to find out.

As for the "allocated" gold - that which has been specifically identified as property of the Trust and held in a segregate account - in the case of HSBC going insolvent, the Trust can claim ownership of the properly allocated gold, but will be subject to the liquidator freezing access to ALL gold in ALL accounts held by the Custodian, including gold held in the Trust Allocated Account.

It gets worse. HSBC has the ability to appoint subcustodians to hold gold for the trust, and the subcustodians can appoint further subcustodians (page 12-13). From page 12:

Because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may hold the Trust's gold, failure by the subcustodians to exercise due care in the safekeeping of the Trust's gold could result in a loss to the Trust.

Worse yet, the Prospectus states that there will be no written contractual agreements between subcustodians and the Custodian or the Trustee (page 11-12). AND the Trustee has no right to visit the premises of the subcustodian to inspect the gold or examine the subcustodians records.

Essentially, what all this says is that in the event of insolvency by HSBC, the shareholders of the Trust may in fact have no ability to capture ANY part of their investment in GLD shares. I have further work and analysis to do, but given what I have researched so far, I am quite stunned that anyone would invest money into GLD, as there are absolutely NO shareholder protections against the gold in GLD not being there, or for the shareholders to assert specific claims of ownership. Given that HSBC may be on the brink of insolvency as per Jessel's source, anyone who buys GLD thinking they are buying gold is risking losing everything - that is, being "Madoffed."

we're going into another period of extreme bullion coin shortages and maybe comex bar shortages like we had last march/april in coins. andy told me APMEX - one of the most reputable coin dealers - now has 3-4 week delays on 1 oz. silver coins. thru christmas/new years, they had immediate delivery. this will get worse than last year cuz this means the 2009 mint issue of eagles is already on allocation. you combine that with the letter from the guy last night who can't get his 2 silver comex bars from HSBC and this situation could be explosive.

:Today, at the comex, a huge 2100 contracts of silver are standing or 11 million oz.  January is an off delivery month, so this is absolutely astounding.  We are hearing of massive delays in the delivery of silver.  In todays Midas report, one individual is waiting for 3 contracts to be delivered to him at New York by HSBC.  The warehouse people are indicating to us that they are swamped!!.

No doubt the delivery of the 32 million oz from December still looms large.

There is no doubt in my mind that we will  (or are) experiencig  a comex meltdown due to lack of physical material.

In gold , january is also an off delivery month and a huge 1777 contracts or 177000 oz of options exercised are standing. Again demand for physical is coming from all directions.

Today, Stiglitz appeared with Becky Quick on CNBC.  He basically stated that the reason banks do not loan is not because of the huge subprime, prime or commercial losses but because of the losses in derivatives.They owe a huge amt to each other due to losses in this arena.

Here is the passage and video:

Bill, this is interesting interview.

Notice one of tag lines under video: "problem is banks owe large amount to each other through derivatives". In other words, Stiglitz said that (not bad loans) is the main problem in the banking system. I listened to the original interview, and that was his message.

However, CNBC editor cut that part of the dialogue out of the interview clip. Nonetheless, still quite telling, esp since Stiglitz is a close adviser to Obama.

Opportunities for your money at the World Economic Forum, with Joseph Stiglitz, Nobel Prize Winner and CNBC's Becky Quick

http://www.cnbc.com/id/15840232?video=1015557210

-END-

 

 

Speak to you all on Saturday. 

Harvey.

 

Wednesday, January 28, 2009

Commentary Jan 28.09.

 
 
Good evening Ladies and Gentlemen:
 
First I want to forward to you a great article written by Andrew Hughes:
 
Bailout This!
The Stabilization of the Financial Sector: The Holy Grail of Economic Salvation


Global Research, January 27, 2009
 
 

Idiocy is usually described as "endlessly repeating the same process, hoping for a different result". Lawrence Summers, Timothy Geithner, Nancy Pelosi, Joe Biden et al are straining at the leash to get the Bailout Ball rolling once again. The stabilization of the financial sector, as elusive as it has been so far, has become the Holy Grail of Economic salvation. That makes $8.5 Trillion worth of trying and $0 of result. The Knights of the Oval Table are gathered to plan their mission as their beleaguered subjects are trying to batter down the castle gates.  It's no small wonder that Geithner wants to get the money out the door as soon as the end of this week.

The most recent
report from the Comptroller of the Currency seems to have gone unnoticed in Washington and the press. If banks are not lending because of increased capital requirements in the face of Credit Default Swaps, other derivatives and loan defaults then the report goes a long way in describing exactly why.

Credit Exposure to Capital ratio. Amounts in $Millions

Bank

Assets

Derivatives

Credit Exposure to Capital Ratio

J.P. Morgan Chase

$1,768,657

$87,688,008

400.2

Citi

$1,207,007

$35,645,429

259.5

Bank Of America

$1,359,071

$38,673,967

177.6

HSBC

$181,587

$4,133,712

664.2

The assets comprise largely of Real estate, residential mortgage, student, car and credit card loans. With the rise in defaulting mortgages, delinquent credit card and other debt the problem can only get worse. To recapitalize the banks to the point where exposure is low enough to encourage lending would take trillions and that's before any more fallout from the collapsing economy. Lending also requires creditworthy borrowers, the number of which is in a nosedive. The $165 Trillion in notional derivatives and the associated credit risk related to $15 Trillion in Credit Default Swaps illustrated below is the poison apple that the taxpayer has been forced to bite into.

Bank

Total Credit Derivatives

J.P. Morgan Chase

$9,177,731

Citi

$2,939,783

Bank Of America

$2,480,672

HSBC

$1,152,948

When the "credit crunch" began and Washington began the rush to solve the problem with taxpayer cash, no accounting of this derivative nightmare was ever brought to bear. In all the deliberations and press releases there was not a single mention of the fact that the primary cause of the bank collapse was due to these "instruments of mass destruction". It was widely discussed in the blogosphere but, like the real reasons for invading Iraq, never made it in to the mainstream media. As with Iraq, one would have to assume that the reason was to obfuscate the facts and cajole a shocked public in to accepting as a remedy whatever was proposed by Paulson, Bernanke and Bush. The latter had to be completely aware of the OCC data at the time and to assume that they did not is simply not credible. It would have been completely obvious that $700 Billion would do absolutely nothing to alleviate the crisis. As witnessed in the ensuing months since the TARP bill, how the money was used has been obfuscated and concealed.This was always a scam.

Even as the economic indicators broke one record after another, the recipients of the TARP funds were selling Credit Default Swaps to each other, betting on each other's downfall. They knew the game was up and wanted to profit on the way down as much as they had on the way up. All the major Banks on Wall St. are seeing mounting losses and the failure of one will increase the losses of the other. They are joined at the hip and will fall like a house of cards.

The question begs to be asked, and this is where the cynic in me dominates, what's the plan? When they do fall will the Government nationalize the last one standing for the good of the country and socialize even more of the losses? This would be the coup of the millennium and give birth to a new Governmental paradigm. To have this complete before the economy and society have completely broken down would be a good reason to declare a real National Emergency and declare Martial Law, the legislation, executive orders and infrastructure of which are already in place. How can one not be a cynic when we reflect on what has happened so far?

The numbers are in and the scam stands exposed to those who will look. Which way the story unfolds from here is anyone's guess. But I am ready to bet that Congress will not include the OCC data in the upcoming debate on the next round of cash for the Banks.

end
 
 
Please note that the top 4 banks have 165 trillion dollars in derivatives backed by  5 trillion dollars in assets.
Also note that these 4 banks have 15  trillion in credit default swaps,  the term Buffet describes as financial weapons of mass destruction.
 
The entire usa banks have a total of 10 trillion in loans assets on its books.  These range from 1 trillion in subprime, to 1.2 Alt a's, and the rest in consumer loans, home loans and 3 trillion in commercial loans.  There are about 7 trilllion in securitized mortgages outof the 10 trillion in total loans assets.
 
Coventional wisdom has it that about 35-50% of these loans will have to be written off as uncollectable. They have only written off 1 trillion with another .6 trillion slated for these next two quarters.
 
So the banks may need further cash infusion of between 3.5-5.0 trillion dollars to cover their losses.  And they haven't even started covering their gigantic holes with respect to losses in the derivatives.  This is their nightmare and this is the reason that they do not loan.
 
 
Gold today closed down by 10.80 to 881.10.  Silver fared a little better closing down only 7 cents to 11.96.
Rumours spread today that the German bundesbank was selling gold.  This is total nonsense and the German bank was quick to dispute this rumour.  Germany has 3400 tonnes to their credit but zero on their soil.  They have swapped 1700 tonnes with the usa in 1999 and the other 1700 tonnes have been leased out.
 
The German central bank has been purchasing gold on the market to make gold coins.
After the market closed today, a spokesman claimed that Germany is buying gold and not selling an oz.
 
Today, the house passed the 825 billion stimulus bill which must now go to the senate.  It will be a little tougher over there.  Here is the important passage: Please note the increases in various other costs that need to be added.  This bill will exceed 1 trillion easily.
 

05:30 Size, cost of stimulus plan rising - WSJ
The $825B bill added a $69B Senate proposal to shield middle-income earners from the alternative minimum tax yesterday. And the nonpartisan Congressional Budget Office says government borrowing required to enact the plan will add another $347B in costs. The package includes $365.6B for projects like highways and bridges; a $180B measure to boost jobless benefits and Medicaid, among other things; and a $275B tax-relief package. The Page One article discusses the jockeying taking place among various sectors as, for example, the concrete and asphalt industries vie for road projects that favor them.
Reference Link (subscription required)

The Congressional Budget Office issued a press release today claiming the need for additional billions of dollars to shore up the banks:

CBO: U.S. banks may need hundreds of billions more

WASHINGTON, Jan 28 (Reuters) - The U.S. financial rescue plan will probably need hundreds of billions of dollars in additional funds beyond what has already been approved for the Troubled Assets Relief Program, the head of the Congressional Budget Office said on Wednesday.

"I think the gap that remains in terms of the recapitalization needed by the banking system, exceeds the amount of money left in TARP, I think by a good margin," Doug Elmendorf told the Senate Budget Committee.

While some of this capital could come from the private sector, "the odds are that more money will be needed than has been authorized so far in the TARP, probably to the tune of hundreds of billions of dollars," Elmendorf said.

He noted that lawmakers would have to decide whether to approve more money for the TARP, but "I think that will be presented to you" by the Obama administration.

-END-

From Geneva:

 

the world will lose 51 million jobs.  The global economy is quite ill:

World economy may lose 51 million jobs: U.N. agency

GENEVA (Reuters) - Up to 51 million jobs worldwide could disappear by the end of this year as a result of the economic slowdown that has turned into a global employment crisis, a United Nations agency said on Wednesday.

The International Labor Organization (ILO) said that under its most optimistic scenario, this year would finish with 18 million more unemployed people than at the end of 2007, with a global unemployment rate of 6.1.

More realistically, it said 30 million more people could lose their jobs if financial turmoil persists through 2009, pushing up the world's unemployment to 6.5 percent, compared to 6.0 percent in 2008 and 5.7 percent in 2007….

Today, the stock market jumped with news that Obama was going to have a bad bank buy all the toxic junk.  The market rejoiced with a gain of 200 points.

 

Let me emphasize that this is identical to the original TARP program that was negated by Paulson.

 

Let me emphasize the problems that the administration will face:

 

If the "bad" bank buys the toxic assets at too low a price, then the banks will be bust.  The credit default swaps will be triggered and the entire derivative market will implode.  Hyperinflation will follow almost immediately as the central bank prints dollars to pay for the losses!!

If the"bad" bank buys the toxic assets at too high a price, then the tax-payer gets the bill and the public will end up holding the bag with this garbage .  They will have to print massive amt of dollars to bail this "bad" bank out.

 

You can see that both results will  lead the USA and the global economy into a  massive hyperinflation and that the rising of prices coupled with low economic activity will lead us into a hyperinflationary depression. 

Speak to you on Thursday.

Harvey.

Tuesday, January 27, 2009

Jan 27.09 commentary.

 
Good evening Ladies and Gentlemen:
 
I just received an email from Bart Chilton.  You will see my response.  This is in reference to the Ted Butler article which I will appendix:
 
super news. I believe this is the only way to resolve the issues at hand, in an open forum.  There are a lot of unanswered questions that must be resolved.  I can assure you that I would attend.  I can assure you Mr Butler would attend  as well.
Harvey.


From: Chilton, Bart
Sent: January-27-09 6:37 AM
To: Harvey Organ
Subject: Re: silver manipulation..Ted butlers latest paper

Thx -- I called for this last year. Maybe there will be support for it with a new chairman.
B


From: Harvey Organ <harveyorgan@rogers.com>
To: Chilton, Bart
Sent: Mon Jan 26 19:46:32 2009
Subject: silver manipulation..Ted butlers latest paper

Here is Ted latest commentary which you should have.
I agree with Ted, that there can be an open meeting where all parties can voice their concerns.
I would certainly attend as wo uld  Don Jack and others.
 
Anyway, here is the paper:
 

 

  TED BUTLER COMMENTARY

January 26, 2009

Madman Across The Water?

(This essay was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

An investigative reporter from the United Kingdom, Rob Mackinlay, has written what I believe is an important story on the current silver investigation by the CFTC. http://www.investegate.co.uk/invarticle.aspx?id=66609 As source data, he interviewed two former Directors of the Division of Enforcement.

In doing so, Mackinlay has raised some pertinent issues, confirming that the CFTC has never broken up a manipulation in progress in its history. That would suggest they are somewhat tentative about how to deal with an unfamiliar situation. The Commission’s reluctance to initiate any action that would rile the markets would only increase that tentativeness. Make no mistake - forcing the big shorts to stop manipulating the price of silver would have an explosive impact on price.

In addition, the two former Enforcement Division Directors confirmed there must be substantive and credible evidence of wrongdoing for an investigation to have been initiated. At the risk of stating the obvious, how could one or two U.S. banks holding a net short position equal to 25% of the annual world production of any commodity not be a substantive manipulative issue? Especially when the Commission itself is the source of the data.

I agree that the CFTC is between a rock and a hard place. There is a crime in progress which they wish they didn’t have to confront. But the law states that they must. Besides, this is a dilemma of their own making. By ignoring the clear facts of manipulation for so many years, they have created a monster that will not be resolved easily or without disorderly pricing. They can stall and delay. They can obfuscate and dance around the issue. They can twist and try to evade simple questions. They can run, but they cannot hide. The physical market shortage will do what the CFTC has refused to do - end the silver manipulation.

The amazing thing is that a bloke from across the pond is writing about a topic that American journalists just can’t grasp, even though this is a homegrown manipulation on an American exchange under the mandate of a U.S. regulator. The day will come when American journalists will bore us to tears with yet another useless story about the great silver manipulation, after it is broken and common knowledge, ala Madoff. In the meantime, here’s a tip of our hat to Rob Mackinlay.

Shooting The Messenger

The latest Commitment of Traders Reports (COT) continue to provide clear evidence of manipulation in COMEX silver. As of the close of business Jan 20, a new multi-year record was set in the percentage of the market held by the 4 largest short traders, at 48%. And when all spreads are removed from both the non-commercial and commercial categories, as is proper, the true net short position of the 4 largest traders runs over 66% of the entire COMEX futures market, the largest silver market in the world.

In other words, 4 traders hold two-thirds of all the true short positions on the COMEX. That such a concentration equals a control on price should be beyond question. If these four shorts were forced to cover their positions and had to be replaced by many sellers motivated by free market prices, the price would need to double or triple or quadruple. That’s the key question in any manipulation - what would the price of an item be, higher or lower, if the manipulators were removed from the market?

In addition, the past few weeks have revealed another strong proof of manipulation through overt concentration. The short position of the next 4 largest traders (the 5 thru 8 largest traders) has shrunk to its lowest level in more than a decade, both on a percentage and actual contract basis. Since the raptors (the 9+ commercial traders) have held a long position for many months, now that the 5 thru 8 largest traders are abandoning the short side, the big 4 must dig in to keep the price from exploding. When just 4 commercial traders collude to manipulate prices, one would think the CFTC might see it. Apparently not. I will provide this evidence to the Enforcement Division, as I have with all the evidence I have uncovered, but I get the distinct impression they are not interested in seeing any evidence of manipulation.

I have reason to believe that the CFTC might try to conclude its investigation of a silver manipulation by attacking my personal credibility. They have attempted this in the past. I hope that’s not the case since this issue is too important to get sidetracked by petty distractions. The issue is not who is asking the questions. The issue is the merit of the questions, namely, how can such an extreme short concentration, in terms of real world production and inventories and as a percent of the futures market be allowed to exist. This is not the time to shoot the messenger because you can’t address the message.

Instead, I have a different solution. Why not have the CFTC air the matter in the full view of the public, and not behind closed doors? This can be done at no cost to the taxpayers and should resolve the issue completely. Last spring, the Commission assembled all interested parties in their Washington, DC headquarters for a full-day public hearing on the volatility in the commodity markets. The hearings were carried live via internet webcast. They have the capability to run such a live hearing. More people have written in on the silver manipulation matter than ever wrote in on the issue that prompted last spring’s hearings and webcast. It seems reasonable that such a silver webcast could be arranged. Let the Commission explain why there is no silver manipulation and answer simple questions. Let the public decide, with its own eyes and ears who is telling the truth.

 

Web Site Design by Media Relations Inc

 end
 
 
It seems we are now in the public domain:
 

My colleague and good friend CP made a special point in Vancouver to note that talk of GATA being a conspiracy group is now long outdated and inappropriate because of the slew of evidence of gold market manipulation is of "public record." That word is spreading…

World Affairs Brief, 290 West 580 South, Orem, Ut 84058, USA

PROOF OF US MONETARY AND GOLD PRICE MANIPULATION

The Gold Anti-trust Action Committee (GATA) has long petitioned the federal government through FOIA requests to reveal information about how it secretly manipulates currency and gold transactions to support the dollar. The government has consistently refused to respond. Writer and researcher Elaine Supkis found an important document buried in the Federal Reserve's archives, marked Confidential. It comes from the papers of William McChesney Martin Jr., and is held by the Missouri Historical Society. It is written by a high level administrator out of the Federal Reserve Bank of NY [in the early 1960s] and describes in considerable detail the techniques the government is about to embark upon to manipulate foreign exchange markets to halt the ongoing outflow of gold. The US dollar was still redeemable in gold at that time and foreign nations drained US gold rather than hold onto the ever-increasing flood of paper dollars coming out of the US Treasury. This is the smoking gun GATA researchers have long sought after, and now it is open for the world to read. Even more interesting is the version by James Turk where he inserts his very astute analysis of the document to help readers understand the technical aspects that may not be clear to ordinary people. This is an historic find. Here is the link: http://www.gata.org/node/7095.  end

 
And now for economic news:
 
First of all, please accept my apologies as I gave some wrong information yesterday.  The options of gold expire today and not tomorrow.
And this is the very reason that the cartel boys hit gold below 900.00 and silver below 12.00.  I guarantee that gold and silver will both fly past the 900 level for gold and the 12.00 level for silver tomorrow.
 
Gold finished today at 898.50 and silver at 11.98.
 
LIBOR rates continue to remain at 1.18%.  The arteries are still clogged.
 
The first big news came from housing and again the figures are pretty dismal:
 
 
 

US Nov home prices plunge record 18.2 pct yr/yr-S&P

NEW YORK, Jan 27 (Reuters) - Prices of U.S. single-family homes plunged a record 18.2 percent in November from a year earlier, indicative of a U.S. housing market that is still in the throes of a deep recession, according to the Standard & Poor's/Case-Shiller Home Price Indices.

The composite index of 20 metropolitan areas fell 2.2 percent in November from October, S&P said in a statement on Tuesday. The depreciation on a month-over-month basis was slightly worse than expectations based on a Reuters survey of economists.

The year-over-year price drop, however, was slightly better than expectations.

S&P said its composite index of 10 metropolitan areas fell 2.2 percent in November from October for a 19.1 percent year-over-year drop, matching the previous month's record drop.

"The freefall in residential real estate continued through November 2008," David M. Blitzer, Chairman of the Index Committee at Standard & Poor's, said in a statement.

-END-

Dave from Denver…

Home values fall record 18.2% in past year...Prices have tumbled 25% from the peak, Case-Shiller says:

http://www.marketwatch.com/news/story/US-home-
values-down-record/story.aspx?guid=%7BAFE9
CB7B%2D3CE1%2D4281%2DB5F9%2D7FF461A6EB05%7D

The important point to remember is that this is a broad index of prices in 20 cities. Many large urban areas are down substantially more, and some areas have not declined as much as the index, although all indicators based on research from several experts, like Mike Morgan, indicate that most areas will follow the leaders down. Another point to consider, I was chatting with surviving real estate broker here in Denver (i.e. she's good at what she does) who told me that the most expensive areas in Denver are down 40%.

Prices were driven to internet bubble valuations by the massive printing of money by Greenspan and fraud and corruption in the mortgage industry. Everyone who could have possibly gotten a mortgage (i.e. anyone who wanted a house and could pass the "fog a mirror" test), now owns a house and is likely very underwater. Obama's plan to print even more money and give it to the banks will not solve this problem because the fundamental value of the underlying collateral for all this housing inventory is not worth even 50% of the mortgage debt already outstanding. Why does the Obama administration and Congress insist on trying to fix this catastrophe with more of the same inputs that caused the catastrophe?

nfidence 37.7, record low, vs. consensus 39.0
Dec reading was revised to 38.6 from 38.0.

Then came news from the USA consumer confidence number.  The street was expecting improvement from the month before.  The result was pretty shocking.  I  will  appendix  comments on this for you:


U.S. consumer confidence falls again to record low

NEW YORK, Jan 27 (Reuters) - U.S. consumer confidence fell to a record low in January as a downtrodden housing sector and worsening job prospects kept the country in a somber mood.

The Conference Board, an industry group, said its sentiment index fell to 37.7 from a revised 38.6 in December, confounding forecasts for a small uptick.

"Consumers remain quite pessimistic about the state of the economy," said Lynn Franco, director of The Conference Board Research Center. "Until we begin to see considerable improvements in the expectations index, we can't say the worst of times are behind us."

In January, the expectations index dropped to 43.0 from 44.2 the previous month.

Yet despite the worst year for the labor market in more than a half century, Americans were remaining cautiously optimistic about their prospects.

The number of respondents saying jobs were hard to get edged down slightly, although the proportion of consumers expecting their incomes to rise declined to 10 percent from 12.7 percent.

At the center of the country's economic crisis was a housing sector that showed few signs of improvement. In a separate report on Tuesday, S&P/Case Shiller said home prices fell 18.2 percent in the year to November, a record drop.

Home values have deteriorated by as much as a quarter from their 2006 peaks, a development largely deemed impossible by most mainstream economists at the height of the bubble.

Cheaper gasoline has been one of the few benefits of the downturn but has thus far failed to significantly boost consumption as consumers adjust from many years of heavy reliance on debt to fuel their spending.

Only 13.3 percent of consumers expect business conditions to get better within the next six months, The Conference Board said.

-END-

Dave from Denver, who is on a roll today…

Consumer confidence index lowest ever recorded - surprise surprise, economists were expecting this measure for December to be higher:

Confidence among U.S. consumers fell to 37.7, down almost a point from the revised December number of 38.6, according to today's report from New York based private research group The Conference Board. That's the lowest level ever since they started measuring this stuff back in 1967. And this caught economists off-guard. They had predicted that consumer confidence would actually rise in January.

http://clusterstock.alleyinsider.com/2009/
1/consumer-confidence-plunges-to-lowest-levels-ever

This further proves that the economy, at the grass-roots level, is much worse than we're being told by the media, Wall Street and our new Presidential Administration. Discretionary income for the consumer is gone because for the last 8 years "discretionary" income was that which was being borrowed on home equity and credit cards. Now the source of discretionary spending is gone, and the average consumer's income isn't even close to being enough to pay off all the debt they borrowed to fuel the U.S.'s consumer-driven GDP. What I don't understand is why

Obama and Congress insist on using tons of napalm to try and put out a forest fire.

 

The Richmond Manufacturing Fed reported in today and again the index is at its nadir:

 

10:00 Jan Richmond Fed Manufacturing (49) vs. consensus (50)
Prior reading was (55).
* * * * *

I reported on this yesterday:

Iceland’s Government Collapses

January 26, 2009

REYKJAVIK, Iceland (AP) -- Iceland's coalition government collapsed on Monday after an unprecedented wave of public dissent, plunging the island nation into political turmoil as it seeks to rebuild an economy shattered by the global financial crisis.

Brynjar Gauti/Associated Press

Prime Minister Geir Haarde of Iceland at the parliament in Reykjavik on Monday

Prime Minister Geir Haarde resigned and disbanded the government he's led since 2006. Haarde was unwilling to meet the demands of his coalition partner, the Social Democratic Alliance Party, which insisted on choosing a new prime minister in exchange for keeping the coalition intact.

'I really regret that we could not continue with this coalition, I believe that that would have been the best result,' Haarde told reporters.

Iceland has been mired in crisis since October, when the country's banks collapsed under the weight of debts amassed during years of rapid expansion…

(it was reported an hour ago that Geir Haarde, the former prime minister of Iceland has throat cancer)

I will leave you tonight with this video today of Ron Paul on CNBC. It is 10 minutes long but well worth watching:

Hi Bill -
This is an amazing interview with Ron Paul on MSNBC this morning.

http://pimpinturtle.com/2009/01/27/ron-paul-talks-about-the-economy-on-morning-joe-12709.aspx

The very first line of the interview is..."Educate this panel of experts here.."

 

speak to you tommorrow

Harvey.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**

 
 
 
 
 

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