Saturday, February 7, 2009

Feb 7.09 commentary..important ...moment of truth.  and Jim Willie.

I first would like to publish communications I haid with the Commissioner of the CFTC and with Ted Butler:


Very well said. It is really hard coming up with a legitimate explanation for why they aren't digging deeper. Maybe because there are no legitimate explanations


-----Original Message-----
From: Harvey Organ <>
To: 'Chilton, Bart' <>
Cc: ;
Sent: Wed, 4 Feb 2009 6:21 pm
Subject: RE: RE: SLV shorts Butler's Latest paper

Hi Bart:

Sorry about you drowning in more emails but the situation is quite dire.

I know you cannot micro-manage everything, however it is strange that the
man who has been complaining for over ten years and a man who has without a
doubt the most knowledge on the subject, has been totally and purposely
ignored by the CFTC.

If there was a desire on the part of the commmission to ascertain what has
happened, and as well receive no co-operation from the "mark" in the
investigation, then I would leverage Mr Butler.  He should quickly and
thoroughly solve all your unanswered questions.

Just like the Madoff testimony given by Mr Markopolis today, the regulators
have a fear of being blacklisted by JPMorgan and Goldman Sachs, and this
fear guides their actions.

Regulators forget that their duty is to the public, not the banks.  If their
actions are guided by the plum job offers that they get when leaving their
positions within the Commmission, then I can only say that all are complicit
in this crime and should suffer the consequences once the fraud has been

The bank shares are trading as if going into a vortex.  Bank of America
today traded at $4.72.  Citibank continues to flounder at around 3.70 as
well.  Both of these banks have huge derivatives and also massive credit
default swaps underwritten by JPMorgan and AIG.  Their failure will blow up

It is for this reason that I urge you to present our documents to the
cabinet so that President Obama can deal with the problem in an expedient
fashion as I don't believe we have the luxury of waiting.

Harvey Organ BScPhm MBA

-----Original Message-----
From: Chilton, Bart [ <> ]
Sent: February-04-09 11:49 AM
To: Harvey Organ
Subject: RE: SLV shorts Butler's Latest paper

Hey Harvey:

I'm drowning in e-mails - sorry. I know that the investigators will take Mr.
Butler's testimony, but I can 't micro-manage their schedules or timing on
the investigation - they are looking at myriad things.   I had hoped they
would have done so by now, but it is really not my call.



From: Harvey Organ [ <> ]
Sent: Tuesday, February 03, 2009 4:58 PM
To: Chilton, Bart
Cc: 'Don H. Jack'; 'Robert G. Hryniak';
Subject: SLV shorts Butler's Latest paper

Hi Bart:

I am sending you down Butler's latest paper and it has many of disturbing
elements that I have forwarded to the CFTC and Enforcement in earlier

It has to do with the massive shortfall in shares at the SLV which violates
the terms of the prospectus.  This is an area that Mary Schapiro should
delve into as well as the enforcement arm of the CFTC.

I would also like to point out to you that the Central fund of Canada
purchased in excess of 4 million oz of silver at prices 22% higher than

They did not use a bullion bank.

I have asked Christine to call Stefan Spicer the CEO of Central Fund who
would be delighted to speak to the CFTC.  In front of her lawyers and Mr
Jack, she promised that she would speak to him but to no avail.  She refuses
to call Mr Spicer who without a doubt can fill in many missing pieces with
respect to physical silver purchases.

Christine emphasized in a rather strong manner that she "WILL SPEAK TO MR
BUTLER".  To this date, nobody at the CFTC has talked to Mr Butler. Mr
Butler without a doubt has more knowledge in the silver arena than any
person on earth.

With respect to the SLV, its sponsor is Barclays and its custodian is the
HSBC.  Barclay's is rumoured to be in hot water as they are terribly offside
on their banking covenants.

I sent you an earlier email on Mr Gensler to which I have not received a

It has now been 7 months and the crime continues unabated including
yesterday and today.

A lot of people have been damaged by the actions of JPMorgan. I can only
urge the regulators to do the right thing for a change!!


And now the regular report:

Gold closed up by 70 cents to 913.50 and silver caught a tailwind closing up by 37 cents to 13.16.

The big news of the day however was the jobs report and it was worse than thought.  A total
of 598000 people lost their jobs.  A revision of a further 77000 on previous reports adds to the
list.  The unemployment rate went up to 7.6%.

Here is the report:

US economic news:

08:30 Jan non farm payrolls reported (598K) vs. consensus (540K); unemployment rate 7.6% vs. consensus 7.5%
* * * * *

08:30 Jan average hourly earnings 0.3% vs. consensus 0.2%; average weekly hours 33.3 vs. consensus 33.3
Dec average hourly earnings revised to 0.4% from 0.3%; average weekly hours unrevised from 33.3.
* * * * *

08:30 Dec non-farm payrolls revised to (577K) from (524K)
* * * * *

U.S. January job losses most severe in 34 years

WASHINGTON, Feb 6 (Reuters) - U.S. employers slashed 598,000 jobs in January, the deepest cut in payrolls in 34 years as the national unemployment rate shot up to 7.6 percent, according to a Labor Department report on Friday that underlined a deepening recession.

January's job losses were worse than the 525,000 that had been forecast by Wall Street economists, who also had expected the unemployment rate to come in lower at 7.5 percent. The bleak employment data is certain to be cited by the Obama
administration as a fresh reason for Congress to speed up debate over a multibillion-dollar package of proposals to try to stimulate economic activity.

Last month's job reductions were the largest since 602,000 in December 1974, while the jobless rate reached its highest level in more than 16 years.

"January's sharp drop in employment brings job losses to 3.6 million since the start of the recession in December 2007," Commissioner of Labor Statistics Keith Hall said in a statement, and "about half the decline occurred in the last three months."

January's losses followed upwardly revised cuts of 577,000 in December and 597,000 in November.

The manufacturing sector bled jobs at the sharpest rate during January in more than 26 years, shedding 207,000 workers after cutting 162,000 in December. The last time more factory jobs were lost in a single month was in October 1982 when 221,000 were cut. An index measuring total paid hours for factory workers dropped to its lowest level since 1940, department officials said.

Construction industries dropped 111,000 jobs in January after 86,000 in December and Hall said that pace of cuts was accelerating. Retail businesses cut another 45,000 positions after shedding 82,700 in December.


The job losses has created havoc for all levels of government.  Municipalities are not receiveing funds from the states.  Sales tax revenue is falling off a cliff as we have already seen California default.  Jefferson County is threatening default as will the state of Alabama.  The state of Arizona will run out of money in 3 weeks. I highlighted a paper written on Thursday showing that 46 out of 50 states will file for bankruptcy protection this year.

Consumer credit has fallen off a cliff.  it is down from the estimated 3.5 billion loss to a full 6.6 billion.  Here is the link to that report:
15:00 Dec. Consumer Credit data reported ($6.6B) vs. consensus ($3.5B)
Prior revised to ($11B) from ($7.9B).   end.
And then we heard from Equifax where more and more conumers are missing their debt payments:

REUTERS EXCLUSIVE-INTERVIEW-US consumers miss more debt payments-Equifax

* Lenders tracking credit trends to prevent more losses

* More lenders requesting Equifax's "bankruptcy scores"

* Consumers leery of taking on more debt, saving more

* Lender and borrower retrenchment part of rebalancing

NEW YORK, Feb 6 (Reuters) - U.S. consumers are falling further behind on their debt payments even as both borrowers and lenders struggle to keep the debt burden from getting even heavier in the face of a worsening recession and employment picture, a credit bureau executive told Reuters.

Dann Adams, president of U.S. Information Systems for Equifax Inc , said consumers are missing payments on mortgages, credit cards and auto loans, prompting lenders to further scrutinize borrowers' profiles for signs they should clamp down on credit. [ID:nN06452877]

"Lines of credit are being very closely monitored," said Adams, whose clients include banks struggling to prevent more bad debt from piling onto their balance sheets.

Banks are, for example, warily watching their credit card portfolios in anticipation that consumers whose home values are plunging will turn to credit cards as their home equity lines of credit are cut or canceled.

They are also preemptively culling inactive cards, seeing them as a potential liability: "If the consumer gets in trouble with someone else they'll start using the bank's card, and the bank doesn't want them to do that," he said.

Customers whose credit scores are on a downward trend are finding themselves on the receiving end of more aggressive action to limit or cut off credit.

And more lenders are requesting an Equifax product called "bankruptcy scores" that expresses the probability that an individual will be bankrupt over the next one to two years, Adams said.

But Adams is careful to note that this is "a supply-demand contraction." Consumers are likewise saving more, and growing leery of new debt.

The retrenching on both sides is part of a "rebalancing" underway in the banking system that will insure safety and soundness in the long term, Adams said. But closer in, the tightening of purse strings is exacerbating the recession as consumers miss payments, traumatized banks pull back and the economy contracts further.

"We're not seeing a real positive trend in anything we track," Equifax's Adams said…


On Monday, the new Secretary treasurer is going to finally detail his long awaited rescue plan for the banks. Many believe that he is going to

introduce a bad bank to hold all the toxic waste from the banks.  I would like to review what I commented to you throughout the past few weeks on this matter:


The banks have a total of 10.5 trillion dollars of securtized debt mortgages, commercial mortgages, subprime, alt a's and jumbo mortgages out there.  Roubini , and  other noted economists have forcast that approximately 35-50% of this junk is uncollectable.  Roubini puts the figure at around 3.6 trillion.  Goldman sachs puts the figure at around 4 trillion dollars. The banks have retained earnings of about 1.2 trillion dollars.


Now the problem is how are they going to price the toxic junk to remove it from the banks balance sheet.  If they price the purchase at 8 trillion dollars (i.e. 100% higher than the correct market value) then the banks get to live another life.  Their recapitalization needed will be 1.3 trillion dollars ( 2.5 trillion  minus 1.2 trillion (retained earnings to equal  1.3 trillion dollars.)  The banks would still need 1.3 trillion dollars to recapitalize.  They would probably get foreign countries to inject capital.(the loss of 2.5 trillion comes from 10.5 -8 trillion equals 2.5 trillion)


However, the usa taxpayer would get hosed.  The loss to the taxpayer would be 8 trillion of payouts minus the 4 trillion in recovery or 4 trillion dollars of loss, plus interest.


While this is going on, the usa would be running a huge deficit and the government would keep the printing presses on 24/7.  Not a good scenario. Gold and silver will run to the strasophere.  Long bonds will lower in price (rise in yield) imploding all the interest rates derivatives of JPMorgan.

I will highlight this in a commentary written by Jim Willie later in my comments.


If they only give the banks 2 trillion instead of 8 trillion for their bonds, the banks would be insolvent.  Not only will the banks blow up but also the entire derivatives will blow up as there will be nobody to collect or pay on those derivatives. Gold and silver explode to the strasophere as in the above scenario.


This was released last night by Jim Willie and it highlights the mess than JPMorgan is in:


The secret weapon of mass destruction in the last decade has been the Interest Rate Swap. Notice how the dreaded 'Bond Vigilantes' are all dead, run out of town, or converted to blacksmiths. The IRSwap device enabled JPMorgan to use lower Fed Funds rates and immediately associated short-term USTreasury Bill yields in order to leverage down the long-term USTBond yields. The IRSwap extended the reach of JPMorgan and the US Federal Reserve to control long-term rates. Fires are burning hot in the JPM basements, complete with visible smoke, since 0% yields put nearly infinite pressure on the leverage devices. This is pure physics. USTBills have approached a near infinite value, thus exerting unsustainable pressures on the IRSwap leverage. The end result is a shattered triangle that reined supreme for two decades. The powerful machinery is broken. Like horses no longer held back by weighty stagecoaches loaded with burdensome ballast and overweight men in stolen suits, the gold price will be released. The crude oil triangle will be broken also, but later.


For  years, JPMorgan has been swapping short term treasuries for long term treasuries through derivatives.  In plain English their moves lowered interest rates and forced the bond vigilantes to escape Dodge.  They wanted no part in this scam.


The problem for Morgan is that short term rates went to zero which forced long term rates also to go to ridiculously low levels.  JPMorgan is massively short the long term bonds and thus they are frying as these instruments are now lowering in price and rising in yield as foreign holders do not want to hold low producing interest vehicles.  They would rather hold gold and silver. This was the message that we received last week and now we are hightlighting this for you. We are also hearing that many are preparing to remove all the febuary gold and  March silver in the next few weeks.  Here is the link:

Jim Willie of has heard through his sources that gold has been leaving through the back doors of the COMEX warehouses and there is a group of billionaires ready to empty the vaults by the end of March.

The next area of concern is General Motors.  They must report to congress on the 17th of Feburary. If they cannot come up with a comprehensive plan and return to profitability, then they all go bust.  The problem here is the massive derivatives written by them and on them.

General Motors has about 1 trillion dollars of credit default swaps written on them on their survivability.  We also have massive credit interest rate derivatives written by GMAC et al.   If they blow up, the entire interest rate derivatives also blow up.


This is what we have to look forward to next week.


My guess, is that Geithner is going to disguise the rescue attempt in order to give his banking buddies a life line and hose the public.

Expect some type of insurance on those toxic securities and a guarantee that the banks will lend.  I am not sure that the banks are lining up to loan the money.  For what business?  Nothing makes money anymore!!.


I now must add another country to my list of potential failures.  I have highlighted to you in the past, Iceland, Greece, Spain, Portugal, Ukraine,  Italy and the number one on the list England.


We have a new country and that is Mexico.  This country is running out of control as the drug cartels are seizing the country.

To boot, their big oil field, Canterell is drying up.  The Mexican peso has fallen from 10 to the dollar to 14.5 dollar.  The unemployment in Mexico is rising and they are in serious trouble.


We are witnessing riots on the streets in  Spain, France,  Russia, China and Iceland. Pretty soon you will riots everywhere especially when we are witnessing famine in many countries.


have a great weekend.















Friday, February 6, 2009

Commentary February 5, 2009..

Good Evening Ladies and Gentlemen,
Today gold finised up 11.40 to 912.80 while silver had a superb showing rising 30 cents to 12.79.  Gold was up as high as 19 dollars an oz, however the cabal wanted nothing of it and reduced the price of gold during the thinly traded access market.  Gold OI went up a mere 150 contrracts, and the Silver OI went up a mere 125 contracts, so there was definitely some shorts being covered today.
OK.  Lets start with the news of the day: First off, the usa treasury plans for a record debt sale.  This is the highest debt sale in usa history!!. 

US Treasury in plans for record debt sale

Published: February 4 2009 18:01

The US Treasury on Wednesday opened the floodgates of government bond issuance, revealing plans for a record debt sale in February and more frequent auctions in the months to come.

The announcement came amid growing fears about US government deficits and sent the yield on the benchmark 10-year Treasury note rising to 2.95 per cent, up from just over 2 per cent at the end of December.

The rise in Treasury yields has been pushing mortgage rates higher, complicating efforts to revive the economy. The US Federal Reserve said last week it was "prepared to" buy Treasuries if that would be a "particularly effective" way of reducing private borrowing costs.

"The Fed has to be troubled by the fact that mortgage rates have been rising and the buying of Treasuries by the Fed may come sooner than the market expects," said William O'Donnell, UBS strategist.

The Treasury said it would sell $67bn (£46bn) in new securities next week, the largest ever quarterly refunding, beating the last peak in August 2003. It may also start monthly sales of all its benchmark Treasury securities.

At the end of February, the Treasury will start selling seven-year notes every month for the first time since the issue was discontinued in 1993. Sales of 30-year bonds will double to eight times a year and the Treasury will say in May whether the bond will be sold every month.

For Barack Obama's administration, the step-up in borrowing costs comes as it is fighting to secure an $800bn-plus fiscal stimulus, and is likely to need many hundreds of billions more to fund a banking sector clean-up.

The Treasury Borrowing Advisory Committee expressed concern on Wednesday over the sharp jump in net borrowing needs – which market analysts estimate could reach $1,500bn to $2,500bn for the 2009 financial year.

Traders are particularly concerned about the appetite for Treasuries among foreign investors, who hold more than half the outstanding $5,500bn in Treasury debt.

In recent years, demand for US government debt has been stoked by developing countries running huge trade surpluses with the US and recycling dollars by buying Treasuries. However, many are facing growing pressure to stimulate their own economies and are seeing their current account surpluses decline as global demand diminishes.


Perhaps the biggest news is the rise in credit default swaps on the usa economy.  The credit default swap rose to a record of 85.9 basis points.
This has to be the most insane bet of all time.  How in earth are you going to collect?  If the usa default, the entire globe's financial apparatus melts.  It would be impossible to collect.  Or you may collect 10 milllion dollars but that buys you a hamburger!!  Here is the story:

U.S. Treasury default bets surge, hit new record

NEW YORK, Feb 4 (Reuters) - Rising U.S. government borrowing has a growing number of investors betting on a potential default by the Treasury down the line, according to credit default swaps data on Wednesday.

According to CMA DataVision, five-year U.S. CDS spreads stood at 82 basis points on Wednesday, having closed on Tuesday at a record 85.9 basis points. As a result, it currently costs $82,000 a year to protect $10 million of U.S. debt.

That is up tenfold from levels seen a year ago and even more from the negligible levels that were common before the credit crisis.

The CDS market is used to hedge against the possibility of sovereign and corporate defaults, and has played a controversial role in exacerbating the credit crisis.

Many believe a default by the U.S. Treasury is a physical impossibility, since all of the government's debts are denominated in its own currency and it could conceivably print more dollars to meet their obligations.


As I pointed out to you yesterday, the Bank of America stock broke 5.00.  Any stock below 5.00 dollars is non marginal in the usa.  This caused the stock to swoon badly in the morning down to $3.73.  This in turn caused the  entire market to tank early.  However the plunge protection team came and rescued the Dow and financials.  The Bank of America  shareholders are concerned that they lack capital due to large losses with respect to the purchases of Merrill Lynch and Countrywide.  Here is the story:



Bank of America Slides to 1984 Levels on Concern for Capital

Feb. 5 (Bloomberg) -- Bank of America Corp., the nation's largest bank, declined to its lowest level in New York trading since 1984 on concern the lender doesn't have enough capital even with a $138 billion U.S. bailout package.

The bank fell 73 cents, or 16 percent, to $3.97 at 10:03 a.m. in New York Stock Exchange composite trading, and earlier declined as much as 20 percent to $3.73, the lowest since October 1984. The stock of the Charlotte, North Carolina-based company has dropped for six straight days and has lost more than two-thirds of its value this year.

AIG however did not participate in the Dow's rally.  It closed down by 3 cents to 1.00 flat. The other big loser was GE down another 41 cents to 10.85.  Here is the story on the bank of America, AIG and GE:

Thanks to the rumor most of the banks closed higher, including BAC, up 13 cents to $4.84. However, the rumor didn't help woeful AIG, which closed at $1, down 3 cents, and GE, the owner of The Planet Wall Street Muppet show. It ended the day down 41 cents to $10.85, yet ANOTHER low.

Here's the inside story on BAC from my sources. We all know about the Bad Bank bit, which has been stalled. The problem is that no one can figure out how to price the lousy assets. In BAC's case, and for others, PIMCO has been brought in to advise the US government how to price them. This occurred something like 6 weeks ago and PIMCO still has not responded to BAC.

Same problem, if PIMCO prices them too high, then the public will get bagged. If they price them too low, BAC won't be able to stay afloat and will have to be nationalized. The common shareholders will be wiped out. The longer the delay, the more panicky investors are getting, which is why the share price of Bank of America is plunging. Meanwhile, in the middle PIMCO has all sorts of conflicts due their own involvement and exposure in the markets.

More on BAC, the PPT, and anecdotal confirmation how right GATA has been all these years…

 Here is another version on the Bank of America/Merrill Lynch saga with respect to the Fed.
Yes Bill....The PPT does exist!


Report: Bernanke Threatened B Of A Over Merrill Deal

By Zachary Roth - February 5, 2009, 11:45AM

We already knew, that, after it got wind of Merrill Lynch's massive fourth-quarter losses back in December, Bank of America had thought about pulling out of its deal to buy the troubled investment bank -- before being talked into it by the federal government.

But today, the Wall Street Journal adds some fascinating detail (sub. req.) about the level of hardball that the government played in making sure the deal went through.

Bush Treasury Secretary Henry Paulson and Fed chief Ben Bernanke reportedly warned B of A CEO Ken Lewis that if his firm pulled out, Merrill would collapse. They added that such a move, in the Journal's words "could undercut confidence in Bank of America, both in the markets and among government officials."

But that was just the start. Two days later, on a conference call, Bernanke told B of A that if it abandoned the Merrill deal, and came back to the Feds in the future seeking more bailout money, the government would consider removing the firm's executives and directors.

The threats, of course, seem to have worked, since Bank of America went ahead with the deal -- getting an additional $20 billion in bailout money to help digest Merrill.

Bernanke and Paulson may have been right to take such a hard line. But the episode suggests the level of control of day-to-day control that the government has had over the financial sector, since stepping in to rescue it last fall. Nationalizing the banks is still seen, in the mainstream debate as an extreme solution. But if the Feds are essentially making major operational decisions for the big banks, some would say they've been nationalized already -- it's just that no one wants to it.


Ths was announced at  8:30 in the morning.  The total of new jobless claims caught the street a little off-guard.  They did not expect such a big deterioration:

U.S. new jobless claims surge to 26-year high

WASHINGTON, Feb 5 (Reuters) - The number of U.S. workers filing new claims for unemployment benefits jumped to a 26-year high last week, according to government data on Thursday that pointed to a rapid deterioration in the economy.

In addition, the number of people staying on the benefit rolls hit a record high in the week ended Jan. 24, showing the weak labor market has yet to hit bottom. On Friday, the Labor Department will issue the employment report for January, and analysts are expecting a drop of 525,000 payroll jobs.

The department said initial claims for state unemployment insurance benefits rose 35,000 to a seasonally adjusted 626,000 in the week ended Jan. 31, the highest since the week ending Oct. 30, 1982. The prior week's number was revised up to 591,000 from 588,000.

Analysts polled by Reuters had forecast 585,000 new claims.

The number of people staying on the benefits roll after drawing an initial week of aid surged by 20,000 to a record 4.788 million in the week ended Jan. 24, the latest week for which the data is available, from 4.768 million the previous week.

The four-week moving average for new claims, considered to be a better gauge of underlying trends as it irons out week-to-week volatility, rose to 582,250, the highest reading since the week ending Dec. 4, 1982.


This is bad.  The arteries of lending by the banks continue to be clogged.  Libor continues to remain at 1.24%:


U.S. commercial paper outstanding falls in week-Fed

NEW YORK, Feb 5 (Reuters) - U.S. commercial paper outstanding fell by $4.4 billion in the week ended February 4 after shrinking a whopping $98.8 billion in the previous week, Federal Reserve data released on Thursday showed.

The closely watched asset-backed sector contracted by $7.8 billion compared with a $7.2 billion drop last week, according to the Fed.

The size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, fell to $1.585 trillion in the week ended Wednesday, from $1.590 trillion the previous week.

Asset-backed commercial paper outstanding fell to $734.0 billion in the latest week from $741.8 billion the previous week.


This is the big news of the day in that 46 out of 50 states could file for bankruptcy in 2009-2010.  The report also alarmed Wall Street in that Arizona is in much deeper trouble than what everyone first thought.

I guess the only states that are solvent are:  Hawaii, Alaska, Texas and Montana.

46 Of 50 States Could File Bankruptcy In 2009-2010

There is a high chance a majority of the States within the United States of America could file for Chapter 9 bankruptcy. There are currently 46 states with high budget deficits, Arizona being one of them.

In fact, Jan Brewer, the newly appointed Governor of Arizona has a major crisis on her hands, one that Arizona and national media isn't covering.

The alarming news is the State of Arizona has 90 to 120 days before they completely run out of money. After that, all bills and tax refunds owed to the citizens will go unpaid.

Before Janet Napolitano left for her new Homeland secretary position, she had a stand-off with Arizona Treasurer Dean Martin. The AZ Treasurer forewarned Napolitano about Arizona's financial crisis, but she refused to heed his words.

With neighboring California on the verge of bankruptcy this year, many States will follow in their steps.

Many States are already scurrying to cut unwanted costs, cut State-funded programs, raise taxes, not issue tax refunds to their citizens, and borrow money just to survive in 2009. Unfortunately, many banks - the same banks the Fed bailed out - are refusing to loan money to the States and their Treasury agencies.

The article, State Budget Troubles Worsen, at the Center on Budget and Policy Priorities website is an excellent piece to read. It shows where each State currently stands in these challening economic times, and you see 46 of the 50 States are clearly in the financial red.

It's very possible you'll see the end of the United States as we know it. If the Fed doesn't bailout the States when their cash dries up and the banks don't loan them money, then our States will be left in financial ruin. This would be a tragic and unprecedented event never experienced in the United States.

No State has ever filed bankruptcy, but it could be coming to a State near you this year.

We are on the brink of something far worse than the Great Depression.


England is a basket case.  They have cut their bank rate to the lowest level in its 315 year history.  The new rate is 1%.  The entire world is zero bound!!:

Bank of England Cuts Main Rate a Half Point to 1%

Feb. 5 (Bloomberg) -- The Bank of England lowered the benchmark interest rate to 1 percent, extending the most aggressive round of cuts in its three-century history as officials try to limit fallout from the deepening recession.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, cut the bank rate to 1 percent from 1.5 percent. That's the lowest since the central bank was founding in 1694 by William III to fund a war against France. The move matched the median estimate of 61 economists of a Bloomberg News survey….



jeffry Immalt, Chairman and CEO of GE stated in an interview today, that this economy is the worst

since the 1970's.  I guess this is why GE stock is down to 10.75.  By the way GE has 10.5 billion shares outstanding.  So a loss of .41 cents means a loss on market value of about 4.3 billion dollars in just one day!!

Tomorrow is the big jobs number.  Expect at least 500,000 lost jobs.  Anything greater and the Dow craters. The bank stocks will also get hammered as tax revenues just melt.


Obama announced that Tim Geithner will announce on Feb 9.09 his long awaited rescue of the banks.

This will be the bad bank scenario.  Our bet will be the tax-payer will get hosed.

I would like to thank my son Stephen, who assisted me in this report.  He also is celebrating his birthday today!

Speak to you on Saturday.



Wednesday, February 4, 2009

Feb 4.09 commentary.

Good evening Ladies and Gentlemen:
Gold closed up by 10.00 to 901.40.  Silver rose by 18 cents to 12.49.
I would like to present to you todays economic news:
Today, Mr Markopolos, went before the Senate for hearing on the Madoff crime.  His testimony was absolutely frightening!!

Madoff Tipster Markopolos Cites SEC ‘Ineptitude’

Feb. 4 (Bloomberg) -- Harry Markopolos, a former money manager who sought to convince regulators for nine years that Bernard Madoff was a fraud, said the U.S. Securities and Exchange Commission suffers from "investigative ineptitude."

Markopolos told Congress today that he contacted the SEC in 2000 after examining Madoff’s investment strategy and determining in four hours that returns exceeding 10 percent weren’t possible. Markopolos, in almost a decade of communication, said only one SEC staff member understood Madoff’s scheme and "the threat it posed to the public."

The libor rate continues to remain high at 1.24%. However the baltic dry good index is rising due to China purchasing commodities again.
China is on a 585 billion stimulus program.
The big news was the performance of the banks.  Bank of America fell below 5.00 to 4.70 and thus massive margin calls will commence.
General Electric fell again today to 11.26.  JPMorgan which had risen to over 25.00 earlier in the session fell badly at the end to 24.04.
And now for more economic news:  the Challenger-Christmas layoff plans:

U.S. planned layoffs in January hit 7-year high

NEW YORK, Feb 4 (Reuters) - Planned layoffs at U.S. firms in January reached their highest monthly level in seven years, according to a report released on Wednesday, as the more than year-old U.S. recession took an increasingly heavy toll on employment.

The impact of an economic slump that is likely to be the most protracted since the 1930s Great Depression is broadening across a wide range of industries, outplacement company Challenger, Gray & Christmas said in its monthly report on U.S. job cuts.

Job cuts announced in January totaled 241,749, up 45 percent from December's 166,348. Layoffs were up from 74,986 in the year-ago period.

Record downsizing in the retail sector, with 53,968 layoffs planned, was the biggest area for job cuts and contributed to the overall rise in January's total, Challenger said.

"The variety of industries represented among the top five job-cutting sectors in January is further evidence of how far the impact of this recession has spread," said John A. Challenger, chief executive officer of Challenger, Gray &
Christmas, in a statement.

"Industries that at first appeared to be immune to downturns, such as computer and pharmaceutical, are now rapidly shedding workers," he added.

The financial sector, however, had its lowest one-month total since 2005, with 1,458 job cuts announced in January, down from 39,604 in December.

The Challenger data comes ahead of the government's closely watched non-farm payrolls report on Friday, which is expected to show 525,000 jobs were lost in January, according to the median of forecasts in a Reuters poll.



According to rating agencies across the US, we are witnessing the highest reported counts on late payments on credit cards.   

Fitch says U.S. credit card late payment hit record highs

(The following statement was released by the rating agency)

Feb 4 - Late payments on U.S. credit cards topped record levels and defaults rose sharply to just below all time highs last month as consumers struggled further amid the deteriorating economic environment, according to the latest Credit Card Index results from Fitch Ratings.

As anticipated, the negative chargeoff results were offset by lower funding costs helping to maintain excess spread cushions for credit card ABS. In addition, monthly payment rates snapped back from the prior month's four-year
lows although they continue to exhibit slowing trends on year-earlier comparisons.

Consistent with previous indications, Fitch expects credit card ABS performance to worsen further given recent delinquency and bankruptcy trends and the rise in unemployment levels….



This is why I am having so much trouble with the comex inventories.  I can no longer trust any data from there.  Here is some commentaries explaining the problems with the reporting of physical data.

On Dec 31 I reported that the COMEX gold warehouse inventory had not changed through December. The dealer inventory level (registered) stood at 2.8 Mozs and the customer inventory (eligible) stood at 5.7 Mozs for a total of 8.5 Mozs. Now again through January they have hardly changed and stand at almost exactly the same levels with 8.5 Mozs total. The gold price has been very volatile, GLD has seen large additions of gold yet the COMEX warehouse levels are like a mill pond of tranquility. This is highly suspicious. There were delivery notices in December issued for 1.3 Mozs of gold. What happened to them? We know various entities, such as Sprott, are taking gold off the COMEX and converting the gold into smaller retail size products like 1 oz coins. The static gold inventory level of the COMEX is similar to what James Turk reported last year about the US Treasury gold "working stock" in his piece "Thinking Like Fat Tony"


This is why the mint has so many reporting problems:


But according to the Treasury’s reports, the Mint’s working stock has remained exactly 2,783,218.656 ounces since April 2006. How is it possible that the Mint’s working stock has remained unchanged for 28 months? Have you ever seen any business anywhere in the world for which its working stock was unchanged for a day, let alone 28 months?

and this on silver:

With massive demand increases being reported last year in gold such that mints rationed gold products, retail supplies dried up, huge premiums are being asked for AND paid for the little gold that is available it is inconceivable that the COMEX gold inventories have hardly changed. I think Fat Tony would smell a rat!

On the silver side we started the month of December with about 129 Mozs of total silver inventory and at the end of December it was 127.8 Mozs so around 1 million ozs was removed in December BUT about 13 Mozs moved from the dealer inventory to customer inventory. Today

the dealer inventory is about the same as at end of December at 69.7 Mozs but the customer inventory has reduced by almost 5 Mozs to

52.5 Mozs bringing the total COMEX silver inventory to 122.3 Mozs. In other words 5.5 Mozs of silver left the exchange in January and it nearly all came from the eligible category. It looks like some big holders of silver are getting nervous…and so they should.

The question I am pondering is why the large contrast between the two metals? Has the COMEX enlisted the help of the BLS to "seasonally adjust" their inventories or have they invoked a BLS birth/death model that allows gold bars leaving the exchange to "give birth" to an identical gold bar?!! Who knows? But something smells in the state of Denmark.



The silver SLV has now reported on its silver inventory.  It has advanced another 10 million oz in the last few days:

The New York-based trust, which issues securities backed by physical stocks of silver, now holds a record 7,530.2 tonnes of bullion, up 737 tonnes or 11 percent since Jan 2. (Reporting by Jan Harvey; Editing by James Jukwey)

We are talking about more silver than the Hunts tried to buy when there were billions of ounces of above ground supply.   end


The 737 tonnes of silver represents exactly 250 million oz of silver held at the Bank of England.  This ETF has now 130 million oz greater than the comex silver inventory.  And silver is at these low prices??


Here is a commentary from a cafe member who basically believes that the inventory at the SLV is basically a fraud:


Here is a quote from Gene Arensberg: "We can observe that even while investors are flooding into the big silver ETF there continues to be a lack of speculative buying activity in the COMEX silver market. For evidence look no farther than the pathetically low total open interest this past COT week of less than 87,000 contracts. As recently as August of last year, the COMEX open interest for silver was 140,000 contracts."

There is absolute evidence of a shift of silver investing away from physical AND futures to the ETF's. This is clear evidence of a lack of credibility in the CRIMEX. We know that over 95% of all CRIMEX shorts are now held by two US banks. We also know that the US banks are in serious trouble and their future must surely lack the trust they were granted just a few short months ago.

The ETF's are just too convenient a vehicle that absorbs huge investor demand in an environment of shrinking silver supply. This investor’s opinion is that the ETFs are too big a target for lent, leased, swapped, silver.

In this environment of opaque dealings, dark transactions, Pro-Forma financial statements, multi-layer storage and insufficient accounting practices, and outright lies, we really have no reason to believe the integrity of advertised inventories of CRIMEX or the ETFs.

If wisdom would have us “trust, but verify”, it is nearly impossible for the average investor to verify. Worse is the fact that our government regulatory agencies have historically aided the practices of unscrupulous operators.
Get physical!

In conclusion, we are witnessing the continual deterioration in the banking sector with Bank of America and Citibank both trading at all time lows.

Tomorrow we will see massive margin calls as Bank of America broke the 5 dollar barrier.   Bank of America has considerable derivative exposure.  However, Citibank is by far the greatest risk to the financial community.  It has the second largest exposure following the ultimate leader, JPMorgan.

We have two potential nightmare scenarios to be played out:


1. the blowup of the banking credit default swaps  and/or interest rate derivatives

2. the failure of the banks to deliver physical gold and silver


either way, the system blows up


see you tomorrow







Tuesday, February 3, 2009

Feb 3.09 commentary...

First off gold got hammered today and closed the day down by 14.70,  Silver fell by 12 cents to 12.31. However before relaying today's events, I  first want to post Butlers latest article for you.  It has many of the elements that I have talked to you about - namely the massive short position on the SLV shares.  Please note that the amt of silver kept rising on the SLV from June on.
In June there were 197 million oz of silver.  During the next 3 months a total of 27 million oz of silver were added.  If the cartel were dumping, and everybody discarding silver, how could the SLV inventory rise?.  Today it is north of 240 million oz of silver.
Here is the paper:



February 3, 2009

Unfinished Business

(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.)

Almost eight months ago, I wrote an article titled "A Hidden Silver Default?" -

It was a detailed article on a complex subject - the unreported short selling of shares in the big silver exchange traded fund (ETF) run by Barclays and trading under the symbol SLV. I won’t repeat all the points made in that article, so I would urge you to read or reread the original, as the issue has surfaced again. Allow me to first summarize my original findings.

The short selling of shares of SLV (and other metal ETFs, like GLD and IAU) is fraudulent and represents a default and violation of the terms of the prospectus, which call for a specific quantity of metal to be deposited for each share issued (minus expenses). Any short sale circumvents this metal deposit requirement, leaving a certain amount of shares unbacked by metal. I wrote how some short selling of shares was tolerable on a very short-term basis and in limited quantities, due to the logistics of arranging for metal to be deposited with the custodian. However, long delays on large quantities of metals being deposited on shorted shares was fraudulent and a de-facto silver delivery default.

I am revisiting this issue because my analysis indicates the problem may have surfaced again. In my original article, I estimated that somewhere between 25 to 50 million ounces of silver were owed to the SLV, at that time. My analysis revolved around the change in the volume of trading of SLV shares compared to overall price action. Currently, that analysis leads me to conclude that 15 to 20 million ounces of silver are now owed to the SLV. By not depositing this amount of metal, due to the short selling of SLV shares, those sellers have, in effect, defaulted on their delivery requirements, as promised in the prospectus, and have defrauded all SLV shareholders.

It is this recent development that has prompted me to review my original article and findings. Quite frankly, I sort of forgot about the original article, because more important developments have transpired since then. Like the revelations in the August Bank Participation Report which indicated one or two U.S. banks held a net short position equivalent to 25% of world annual silver mine production, followed by the historic decline in price and the resultant investigation by the CFTC. This investigation is very unusual in that it is the third silver investigation by the Commission in five years, something that has not occurred in any other commodity. The real irony is that the Commission was not even asked to investigate, but to merely explain how such an unprecedented concentrated position could not be manipulative.

I think the key question is how accurate, or even plausible, are the quantities I allege have been sold short in SLV shares, both then and now. While it remains to be seen how accurate my current speculation of 15 to 20 million shares/ounces may turn out to be, sufficient time has passed to grade my guess back in June, of 25 to 50 million silver ounces being owed to the trust by shorted shares. I’ll present the facts and let you decide.

In June, the SLV held 195 million ounces. Over the next three months or so, more than 27 million ounces of silver was deposited in the trust, within the range of what I claimed was owed. Importantly, this increase in holdings came right in the middle of the most severe sell-off of silver prices in memory, with prices falling as much as 40%. There were widespread reports of commodity fund and general resource type liquidation. Previously, strong inflows of metal into the SLV generally occurred on upward price moves, in keeping with normal investor buying behavior. It must be considered unusual for such strong metal inflows to occur on such dismal price performance. Even the big gold ETF, GLD, experienced a sharp and temporary liquidation of 10% of its metal holdings, before rebounding sharply at the end of September. No such sharp decline in holdings was recorded in the SLV.

My conclusion is simple - the short sellers of SLV shares used the occasion of the vicious general commodity selling to buy back silver metal for deposit into the trust for shares they had sold short months earlier. Throw in what must have been straight liquidation of SLV shares, and the upper band of my range of 50 million ounces probably was realized.

Of course, even if I was dead on the mark with my allegations back in June on the quantity of SLV shares sold short and the subsequent shortfall of actual metal that represented, in terms of fraud and de-facto default, it doesn’t mean I’m right this time. But it certainly doesn’t suggest I’m wrong either. The most important take-away is that if I am just in the ballpark, this means that the silver market may be as tight as a drum.


By Israel Friedman

(Israel Friedman is a friend and mentor to Theodore Butler. He has followed silver for many decades. He has written articles for us in the past. Investment Rarities does not necessarily endorse these views.)

In my best dreams I didn’t believe that you, the silver investor, would make me so happy that you bought almost twenty million US Silver Eagles in 2008. That almost doubled the record of the previous best year ever. I wrote many articles in which I said silver eagles are the most promising investment and I congratulate you in agreeing with my belief.

Nothing has changed from last year. Silver Eagles are still the most promising investment for two reasons. One, the day will come when the Mint will stop minting these coins and they will have a numismatic value. Two, when silver prices will be in the sky with a shortage situation, the demand for one ounce Silver Eagles will be tremendous. Why? Because the price of silver will be so high that people won’t be able to afford to buy 100 or 1000 ounces of silver. One ounce of silver will be of real substance.

The prices lately are artificial, produced by the one or two big short sellers. As long they can satisfy the market with physical silver, they will be able to control prices with their paper short sales. But watch out when they will lose control and then you will become rich by holding silver. This loss of control can happen on any day with no prior notice. Don’t think you can predict it. Just prepare and be ready for it.

Already we have started 2009 with big sales of U.S. Eagles and I hope you will clean up like in 2008 when there were sell-outs and the Mint had to allocate supplies every week. Even though the Mint has increased their production capacity, the demand has continued to exceed supply.

The forces in the market that control silver cannot control the interest that you, the smart investor, has in buying Silver Eagles. There is a tremendous pressure on the short sellers to supply silver for the production of Silver Eagles. It is no joke when 20 million ounces of silver get taken off the market by one force in a year. I hope you clean out everything the Mint produces in 2009 as you did last year.

I can tell you that the real silver value is increasing by the day, but is not reflected in price. If you speak about value, look at the price of gold at over $900 and silver only $12. Take into consideration supply and demand. Do you think silver prices reflect true value? In my opinion, no. I see the true value of silver at close to the value of gold or maybe more.

Ask yourself where are the profits more promising, gold or silver? I’d say silver. It’s not that far away when silver will be past gold prices, then you will make a fortune. I know that many think that is crazy, but I ask you to think of this. Not to sound immodest, I don’t know of anyone who wrote that Silver Eagles would go to a big premium. Look what happened. I was right with the Silver Eagles. I will be right about the silver gold price as well. I read where many people say the premiums on Silver Eagles (and other forms of retail silver) must fall. But I ask these people to be honest and say whether they predicted premiums on Eagles would rise? Then why should we listen to them now? Mr. Butler told me that when I first wrote about Silver Eagles more than a year ago, he received an e-mail from a well-known silver guru saying I was all wet. Only when I take a shower.

I have an intellectual question that I ask myself with no clear answer. In what range the price will silver and gold cross? I can see two scenarios. In deflation, they will cross in the hundreds and in inflation, they will cross in the thousands. I stress to you don’t play the ratios on a leveraged basis as the prices are controlled on the COMEX.

In this moment we must have patience and strength and know that the time is working for us. Silver was always intended as a long-term investment and that is no different today. Things seem to move faster for us, but families grow and age at the same pace as always. Keep that pace in tune with your silver investments. In my opinion, today’s prices for the long-term investors are the best ever to clean out the reserves of the shorts. Once they are cleared away, then the express road will be open for higher prices.

I am happy to see the tremendous interest in silver and congratulate my friend Mr. Butler who is doing a fantastic job by writing weekly. His work on the silver manipulation is truly heroic. Don’t forget that the futures market is a casino and that you will be much better off buying real silver, like eagles and bullion bars.

Probably most are asking when the explosion in prices will come? The only answer I have is when the shortage will come. With all the forces that Mr. Butler has brought against the manipulators, it is amazing they still don’t run. That’s because they have connections and no choice because they will lose so much. Theirs will be no minor retreat. Shortage will mean total defeat.

We see lately some signs that they are struggling. They have not had the power to increase the total visible stocks of silver much over the past 3 months. Up until then we were growing at 15 to 20 million ounces a month and now the growth seems flat. This is a very good sign that their troubles can come any moment.

What will the powerful shorts do before they give up? They will go to the government like crybabies and ask the Mint to stop producing Eagles and the government will give in. Then those who hold Eagles will profit tremendously. Many people are concerned with confiscation, but that is not my big worry. I can tell you for sure one thing. Any confiscation, should it come, will come long after the Mint has stopped producing Silver Eagles. And Eagles will be the last form of silver ever confiscated. Today the Silver Eagles are selling at a premium of 30% or so, and I will not be surprised that the premium can go to 100% and much higher. After all, premiums hit over 70% this past year with no wholesale silver shortage and with the Mint still producing. What will the premium be when a wholesale shortage comes and the Mint says no coins any more?

All the available physical silver in the world is moving out of the big shorts’ control and into the control of the long-term investor. Once this shift is complete, you will be in control and you and your children will set the price of silver.

OK lets go on with some big news starting with the ECB.  They declared that zero banks sold any gold.  However one captive bank bought 1 million Euros worth of gold.  We know for a fact that this country is Germany who always mints gold coins for its citizens.
It is strange that they do not use any gold in their inventory.  The reason of course is that it is just not there.  On earlier commentaries I reported to you that they swapped 1700 tonnes with the Americans at West Point in 1999, and the other 1700 tonnes have been leased.  (They show 3400 tonnes to the credit with the World Gold Council)
Here is their press release:
Even with yesterdays hit, the GLD continues to add tonnage to their inventory.  They now have 854 tonnes of gold.  England has 300 tonnes.  GLD now has almost 300% of the Bank of England.. It is my belief that their real inventory is less than 1/3 of that total.  The rest is confetti gold. 
The raid in gold the last few days is due to the rising OI for both gold and silver.  Gold's Oi rose to 347000 and silver rose to 94000.
Libor continues to remain high at 1.23%, which means banks are still loathe to loan. Basically big ticket items cannot get financed so car sales and home sales plummet!!.
Today, the stock market rallied above the 8000 level.  It was the pharmaceutical stocks that led  the way including Merck and Schering.
Merck rose above 30 dollars.  However these two are dogs and their pipeline is lousy.  Their Vytorin and Zetia products have not performed well.
The biggest decline today was led by banking stocks:

It is not an easy task. The action in the money center bank stocks and other key financial stocks is HORRENDOUS … and that is after all the bailout business.

Derivatives laden GE fell another 25 cents to $11.37, a new low.
AIG is pitiful. This once high flyer closed at $1.08, down 15 cents.
Citigroup (C) continues to disappear. It closed down 19 cents to $3.46.
Bank of America is a basket case. It fell 70 cents to $5.30. Soon it won't even be marginable.
JP Morgan, for all its Planet Wall Street hoopla, acts stinko. It dropped $1.15 to $24.05.

Please note that derivative lade GE fell another 25 cents to 11.87 with the Dow up. Citigroup also fell by 19 cents to 3.46.  However it is still Bank of America that is stinking up the joint.  It fell another 70 cents to $5.30.  JPMorgan also fell by 1.15 to 24.05.
Bill Murphy does not disclose why they fell.  The reason for the fall is the huge drop in the hybrid bonds on Bank of America and Citibank.  Both of these two bankers have these hybrids trading at 48 cents on the dollar. It fell from 75 cents on the dollar from Friday!!
A hybrid is a bond that trades like a bond-preferred.  The bond pays interest (instead of dividends as in the prefered) and it ranks ahead of the preferred.  The company has the discretion to not pay the interest and thus not count as a default.
It seems that many authors are writing that the bankers are going to suspend payment of interest on these vehicles to conserve cash.  Or Obama is going to ask that they curtail payment.
From my vantage point, these two major banks have some serious problems.  If they go down, then Morgan will default because of all their credit default swaps.
OK lets go for some Main Street economic news:
First:  home sales rose quite a bit last month.  It seems that quite a few were looking for bargains.  Here is the passage:

U.S. pending home sales rise 6.3 pct in Dec-NAR

WASHINGTON, Feb 3 (Reuters) - Pending sales of existing U.S. homes rebounded in December, data showed on Tuesday, as buyers waded back into the market to take advantage of lower prices and mortgage interest rates.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in December, surged 6.3 percent to 87.7, rising for the first time since August. Compared with the same period a year-ago, pending homes sale were up 2.1 percent in December.

Economists polled by Reuters had forecast pending home sales to be flat in December. November's pending home sales index was revised up to 82.5.


We then heard from auto sales, which were so dismal.  The entire industry has finally broken the 10 million vehicle rate.  GM reported a drop in car sales of 49%.  Ford was 40% and Chrysler was 55%.  The entire industry sales rate for autos is now at a 9.8 million auto clip for the year.  Last year it was 16 million vehicles.  Here is the auto report:

Auto sales near 27-year low

DETROIT (Reuters) - Ford Motor Co posted a 40 percent drop in January sales in the United States, the sharpest decline for the No. 2 U.S. automaker in 10 months of double-digit sales declines in the world's largest market for new cars and trucks.

Toyota Motor Corp, the world's largest automaker, was hit with a 34 percent sales decline, a drop that underscores how the U.S. recession has tripped up even the industry's strongest players.

Sales for Nissan Motor Co were off almost 30 percent.

The results from Toyota, Ford and Nissan on Tuesday were among the first from major automakers for a month expected to show overall sales near 27-year lows, extending a stretch of 15 months of consecutive auto sales declines.

Chrysler LLC said it expected overall U.S. auto sales for January to drop by as much as 35 percent after a sharp decline in sales to car rental agencies.

The expected deep decline in sales comes despite more aggressive discounting by all of the automakers, including cut-rate financing, employee pricing and cash-back rebates.

Industry-tracking service estimated that industry spending on such incentives rose almost 13 percent in January from a year earlier to more than $2,700 on average.

European automakers also reported double-digit sales drops for January: Mercedes-Benz maker Daimler AG and Porsche down 36 percent, and Volkswagen AG off 12 percent….


Some big news that just came in : it looks like California is severely close to default.  Now the fun begins. California halted payments of 3.5 billion dollars for workers and services rendered:

California goes broke, halts $3.5 billion in payments 8/California_goes_broke_halts_3.5_billion_0202.html


Today, the treasury released what it will need this quarter. Please note that in this quarter they will need 1/2 trillion dollars.  If you multipy by 4 you will get 2 trillion dollars, which is the amt of the deficit:
15:01 (yesterday) Treasury plans to borrow $493B in Q1 vs. forecast of $368B given in Nov
The higher borrowing is largely due to the Fed bill program. The Treasury sees borrowing of $165B in Q2 and sees a cash balance of $225B at 31-Mar and $45B at 30-Jun vs. $367B on 31-Dec. Treasury borrowed $569B in 4Q08 vs. $550B forecast.
Please note that this does not include the 1 trillion in stimulus and also the chinese and other nations cashing in their bonds.
This just in from the housing inventory levels:

Record 19 Million U.S. Homes Stood Vacant in 2008

Feb. 3 (Bloomberg) -- A record 19 million U.S. houses stood empty at the end of 2008 as banks seized homes faster than they could sell them and prices continued to fall.

Vacant homes in the fourth quarter increased by 6.7 percent from the same period a year ago, the U.S. Census Bureau said in a report today. The vacancy rate, the share of empty homes for sale, rose to 2.9 percent in the quarter, the most in data that goes back to 1956.

The worst U.S. housing slump since the Great Depression is deepening as foreclosures drain value from neighboring homes and make it more likely owners will walk away from properties worth less than their mortgages. About a third of owners whose home values drop 20 percent or more below their loan principal will "hand the keys back to the bank," said Norm Miller, director of real estate programs for the School of Business Administration at the University of San Diego.

"When you’re underwater and prices continue to fall, you tend to walk," Miller said in an interview. "It’s a downward spiral that’s tough to stop because it feeds on itself. Foreclosures encourage other foreclosures and falling prices discourage buying."…


I guess you need the fox to guard the hen house.  JPMorgan is going to act as custodian for the Fed :

Morgan and the Fed again…

JPMorgan to serve as custodian of Fed program

JPMorgan to serve as custodian of Federal Reserve program to buy mortgage-backed securities

  • Tuesday February 3, 2009, 9:32 am EST

NEW YORK (AP) -- JPMorgan Chase & Co. said Tuesday that it has been selected by the Federal Reserve to serve as custodian of the government's program to buy mortgage- backed securities.

The program, which began on Jan. 5, will see the Federal Reserve buy up to $500 billion in mortgage-backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae in an effort to improve conditions in the financial markets and help boost the mortgage and housing markets.

The Federal Reserve also selected four investment managers, BlackRock Financial Management Inc., Goldman Sachs Asset Management LP, Pacific Investment Management Co. and Wellington Management Co. to assist with the program.


My son Stephen pointed out this to me last night.  He is right.  All the major players at TOCOM has seen their exposure to gold shorts revert to zero. Here is the chart and commentary for you to study!!:

Look at the net short positions of the traditional major gold shorts on the TOCOM. With the exception of STDJ (Standard Bank of Japan) they have all converged on zero. This is amazing! The entities that have been net short for decades have systematically over the last 3 years worked their positions down to a ZERO net short in gold. These are the most savvy, and in-the-know insiders in the gold world and they have seen it fit not to be short and have known about the need to get out of the gold short side for 3 years. This means this is NOT something they read in the newspaper last week. This is a major macro market factor. What could it be? My guess is that the insiders would have a good idea as to when Central bank gold would be depleted. After all, Frank Veneroso made a guess at this in 2000 with information he could glean from the outside. His estimate was around 2007-2008. Imagine what you could do if you were on the inside with more precise estimates of CB gold inventory and rate of dishoarding. Clearly all the big players do not want to touch gold on the short side as from about NOW. Who knows exactly when this market is going to blow up but it would seem it is REAL close.


Eric Sprott is one sharp cookie.  Please read what he has to say today:

Sprott Says U.S. at Start of Depression That Will Boost Gold

By Stewart Bailey

Feb. 3 (Bloomberg) -- Eric Sprott, the Canadian money manager who last year predicted banking stocks would collapse, said the U.S. is at the beginning of an economic depression that will help gold prices more than double.

Bullion may top $2,000 an ounce in coming years amid a series of financial catastrophes, the chairman and founder of Toronto-based Sprott Asset Management Inc. said yesterday in an interview. Banks will battle to replenish capital, Treasury auctions stand the risk of failing and the moribund economy will create a dire operating outlook for many companies, he said.

"The trend is down, and there’s not one signpost that says it’s changing yet," Sprott said yesterday from Toronto. "We’ll stand by to wait to see those, and until it does, you have to assume it gets worse."

Sprott, who manages $4.5 billion, said in March that the world was in a "systemic financial meltdown," a call that presaged the collapse of financial institutions including Bear Stearns & Co. and Lehman Brothers Holdings Inc. Since then, the U.S. has entered the worst economic slowdown since the Great Depression, credit markets have tightened and asset prices have dropped as companies and funds sell portfolios to raise cash.

The 81-company Standard & Poor’s 500 Financials Index has dropped 62 percent since Sprott said on March 6 he was buying bullion and gold-producers’ shares, while shorting financial- sector stocks. Gold slipped 6.3 percent during the same period.

So-called short-selling allows speculators to profit from a stock’s decline by borrowing shares, selling them to raise cash and buying them later when the price drops to repay the debt.

Betting Against Equities

Sprott now favors buying more gold stocks and bullion while selling the entire equity market short. Most at risk in the current climate are banks and discretionary consumer stocks and any companies that have debt to refinance, he said.

Sprott believes there is a chance that a U.S. Treasury auction will fail as countries use their resources to quell financial turmoil in their home markets, leaving less to help finance the world’s largest economy. That outcome will have a "catastrophic" impact, he said.

"When do people stop buying the credit of the country? That’s a tough question to answer, but it’s on a lot of people’s lips right now," he said. "Each country has their own financial problem, so there’s no funding for anything external."

Such concerns have driven investors to the gold market, propelling the metal higher as other commodities have slumped and helping gold-producers’ stocks almost double in the past three months.

Gold Investors

Greenlight Capital Inc., a $5.1 billion New York-based hedge fund, has started investing in gold for the first time, while Federated Investors Inc.’s $1.3 billion Federated Market Opportunity Fund, which outperformed 99 percent of rivals last year, now counts Yamana Gold Inc. and Goldcorp Inc. among its largest investments.

Gold companies such as Newmont Mining Corp. and Kinross Gold Corp. have taken the opportunity to issue stock to bolster their own balance sheets.

Barrick Gold Corp. Chairman Peter Munk said last week he has been inundated with calls from wealthy investors seeking to buy gold to protect their capital.

"The window to raise money for gold stocks has blown open," Sprott said. "The investing public has started to go to that one thing that they think it’s safe to invest in."


The debt has finally started to rise.  On the first of the month it rose from 10.632 to 10.667 trillion.  However I think they are fudging their figures.

John Crudele of the New York post wrote this piece this morning.  Since Obama is demanding transparency from government officials, Crudele reissued his Freedom of Information request.  GATA is also reissuing an FOI request regarding the gold at Fort Knox and gold sales by the Fed.

Here is Crudele's commentary:

 Barack Obama claims his administration is going to be more transparent than the last guy's.

With that in mind I've refiled my Freedom of Information Act (FOIA) request for details of meetings held the past few years by The President's Working Group on Financial Markets.

The group is also known - affectionately, to some of us - as the Plunge Protection Team and is made up of regulators as well as Federal Reserve Chairman Ben Bernanke and whoever heads the US Treasury.

Specifically, I am requesting meeting minutes of the Working Group, even when those chats were done by telephone.

Former Treasury Secretary Hank Paulson has publicly said meetings took place frequently during the financial crisis.

 Even more to the point, I'd like to know what was discussed by the Working Group at the time two years ago when the Fed was considering the first in what has become a long series of interest-rate cuts.

Paulson was proud of the fact that while heading Treasury he kept in touch with "market participants."

I'd like to know just what Paulson knew from these Working Group meetings and what he shared with his friends who worked on Wall Street.

My previous FOIA requests have been ignored. Let's see if President Obama really wants a government that has fewer secrets.

speak to you tomorrow



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