In a potentially very gold-significant move, The Gartman Letter shorted a significant (two unit) yen position against the "English speaking" (I prefer the Canadian usage "Anglophone") currencies today. He has a strong view that the yen will be forced to slide. TGL is influential and well-informed.
The effect of such a move on precious metals has always been paradoxical. Low yen precious metal prices bring in physical buying and this is said to have been material in Platinum recently. On the other hand, apprehensions of yen weakness have traditionally been the primary driver of demand for TOCOM gold futures, currently standing at a dismally low open interest. A yen slide could well see TOCOM resume its occasional role as a force in world gold.
However, the big news is the huge runnup in the GLD. It has advanced another 15 tonnes yesterday.
The new gold holdings is 986 tonnes. Silver (SLV) holdings are just over 245 million oz.
It is logistically impossible for the GLD to acquire, ship, insure that quantity of gold in such a short period of time. The Central Fund of Canada needs 4 months to acquire half that quantity.
We are writing to both the CFTC commissioner and the new SEC commissioner that the GLD ann SLV are fraudulent.
Here are the daily advance in "physical" gold acquired by GLD:
The big deal this week in gold was the incredible increase in GLD holdings. Supposedly 104 tonnes of gold has been accumulated in the past 4 days alone. Yesterday another 15 tonnes went in. Here are the numbers reflecting the massive increase in tonnage
Monday - 881.87
Tuesday - 894.72
Wednesday - 935.09
Thursday - 970.57
Friday - 985.86.
In graph form:(for all gold etf's)
In economic news, the following are important:
09:55 Feb Univ of Michigan Confidence 56.2 vs. consensus 60.2
Prior reading was 61.2.
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U.S. consumers' mood falls sharply in Feb - survey
NEW YORK, Feb 13 (Reuters) - U.S. consumers' confidence fell to its lowest in three months in February as sentiment grew increasingly gloomy over an economic downturn that most expected to last five more years, a survey showed on Friday.
The Reuters/University of Michigan Surveys of Consumers said its index reading of confidence for February tumbled to 56.2 from 61.2 in January.
That was the lowest since November, when U.S. stocks hit 11-year lows during one of the worst periods of the current financial crisis. A separate reading in the report showed consumer expectations fell to their lowest since May 1980.
"Confidence fell in early February as consumers came to the consensus that the economy would remain in recession throughout 2009," the report said.
"Moreover, nearly two-thirds anticipated that the downturn would last five more years."
The index's headline number was well below economists' median expectation for a reading of 61.0 culled from 60 forecasts in a Reuters poll that ranged from 56.5 to 64.0.
The University of Michigan confidence index dates back to
1952. Its record low of 51.7 was hit in May 1980.
The February report showed mixed views on inflation.
One-year inflation expectations plummeted to 1.6 percent from January's 2.2 percent for the lowest since November 2001, highlighting worries that the United States might be headed for a deflationary period of falling prices, wages and economic activity.
However, five-year inflation expectations edged up to 3.0 percent from January's 2.9 percent.
and then this was released later in the day:
Economists see even deeper US contraction--Philly Fed
NEW YORK, Feb 13 (Reuters) - The U.S. economy will shrink a whopping 5.2 percent in the first quarter, its worst performance since 1982, according to a quarterly forecasting survey published by the Philadelphia Federal Reserve.
In the previous survey, economists had foreseen an annualized decline of just 1.1 percent in first quarter U.S. gross domestic product.
The pain is also expected to last longer than before. The economy was seen shrinking an additional 1.8 percent in the second quarter, bringing the jobless rate to 8.3 percent. Previously forecasters believed GDP might eke out some growth in that quarter, about 0.8 percent.
The following banks were closed by the FDIC today:
WASHINGTON, Feb 13 (Reuters) - U.S. bank regulators closed Corn Belt Bank and Trust Co of Pittsfield, Illinois on Friday, the 12th U.S. bank to fail this year.
WASHINGTON, Feb 13 (Reuters) - Bank regulators closed Pinnacle Bank of Beaverton, Oregon on Friday, the 13th U.S. bank to fail this year.
The news about China continuing to buy USA treasuries has been corrected. Please refer to the following articles:
20:11 China News reports Chinese official backtracks slightly from Treasuries' comment - Bloomberg
Recall that the FT recently cited comments from Luo Ping, a director-general at the China Banking Regulatory Commission, who said that China will continue to buy Treasuries even though it knows the dollar will decline in value. Luo argued that Treasuries are China's "only option" in a perilous world (see 11-Feb, 20:38 comment). However, in an interview with China News, Luo says that US debt is one option in addition to gold and other government debt. He added that if the US government issues too much debt it in its efforts to reinvigorate the economy, all Treasury holders will suffer losses.
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Official clarifies FT report on China buying US bonds
Following a report in the Financial Times, Luo Ping, a senior official at the China Banking Regulatory Commission, issued a clarification pointing out that buying US bonds is not the only option available to China for investing its foreign exchange reserves.
In an earlier Financial Times report on February 12, Luo Ping was quoted as saying: "China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its 'only option' in a perilous world."
Luo clarified the report later the same day, pointing out that buying US treasuries is in fact one of the options available to China, which can also purchase gold and securities issued by other countries and regions to protect the value of its foreign investments.
"If the U.S. issues too many bonds to prop up its ailing economy, the holders will suffer substantial losses," he said.
In September 2008, China surpassed Japan as the largest overseas holder of Treasuries. But as China's foreign exchange reserves grow at a slower pace in the midst of falling exports, it is expected that there will be a declining Chinese appetite for US bonds and dollar-based assets.
In fact, China's own needs, and the country's target of securing the value of its foreign reserves, will be the determining factors in the decision to buy any future bond issues, and the numbers bought.
(China.org.cn by He Shan, February 13, 2009)
And this from London: HBOS which is owned by the Bank of England reported a huge loss of 11 billion pounds. Its sister operation the Royal bank of scotland has reported to you earlier lost 28 billion pounds: here is the story:
We have had another banking shock here as HBOS has reported that its loss in 2008 was much worse than expected at £11 billion and that the deterioration has come from its corporate lending rather than from its mortgage lending. Although lower than the loss reported by RBS two weeks ago, in underlying terms it is worse as £20 billion of the RBS loss of £28 billion related to writing down the cost of its investment in ABN Amro. This totally put the skids under the share price of Lloyds which took over HBOS last autumn just after the Lehman collapse. This deal was done very much at the request of Gordon Brown so he is now under attack and Lloyds may now need more government cash - it is already 43% owned by the state. The market also seems to have been spooked by the news that the losses reflected worse conditions in lending to businesses and this is again opening up the prospect of even more losses for all of the banks as the economy slides. The prospect of the government owning all or much of the banking sector here is becoming more and more likely.
Here is a story on European steel production. Looks like production will fall by 50% as Europe is going into a tailspin. The EC B will have to cut interest rates to zero very shortly. Here is the article:
Industrial production across Europe is falling fast and when the statistics are reported for January and February, based on what is happening in the products where I have knowledge, it is going to look even worse. I was told yesterday that European steel production could even be down by 50% as the main producer Arcelor-Mittal is determined to get rid of the build up of stock in the supply chain. Interestingly, some analysts think that they will move to push up their prices hard once the de-stocking is over to compensate for the loss of volume.
If this sort of production fall happens, then I think you can safely talk about there being an economic depression or slump or collapse - recession hardly sounds adequate. April 2009 is likely to be a key month as by then many businesses will have had four months of bad trading, if not more, and their cash flow will be awful. If major shut-downs or closures are going to be avoided then the banks will need to support these businesses and if they cannot do it then governments will have to intervene, probably by further support for bank lending.
The Federal debt is now rising. It increased another 46 billion yesterday:
I wish everyone to have a grand weekend.
Speak to you on Monday night.