Saturday, February 28, 2009

Feb 28.09 commentary...important

 
Good morning Ladies and Gentlemen:
 
gold closed up by 70 cents in regular gold trading hours finishing at 941.50.  Silver was up by 14 cents to 13.10.
 
The open interest on gold comex rose by 3000 despite the fall in golds price.  This only means central bank selling/leasing of gold.
 
Surprising the open interest on silver plummeted by another 3000 contracts to 95000.
 
Over at the comex pits, the Feb gold contract ended with about 600,000 oz being delivered which is low compared to December's 1.4 million oz.
 
Over in the silver pits, a huge number of silver contracts left, leaving about 15-17 million oz standing. (we must wait for the option contracts to be delivered).  However on first day notice only 700 contracts were hit meaning a low amount of silver available at the comex.
It looks like investors are going elsewhere for its physical silver and gold. I also do not trust the data..Lets just leave it there.
 
Here are the following noteworthy economic events from yesterdays trading:
 
1.  citibank
 
The government exchanged its perferred stock for common stock and basically hosed the taxpayer as they converted the stock at $3.25 per share.  They will forgo interest payments of 10%.  Other major investors like Prince Walid of Saudi Abrabia also converted his preferred for common.  Here is the story for you to read;
 

07:12 C Citi confirms deal reached with Treasury (2.46)
Based on the maximum eligible conversion, the government would own approximately 36% of Citi’s outstanding common stock and existing shareholders would own approximately 26% of the outstanding shares. All investors’ new stakes will be determined following the exchange. Citi will offer to exchange:
Interim securities and warrants for privately held convertible preferred securities;
Interim securities and warrants for U.S. government-held preferred securities; and
common stock for publicly held convertible and non-convertible preferred securities.  end

The shareholders of Citibank voted by unloading their stock.  It plummeted all the way down to 1.50 per share.  No new dollars were sent to Citibank but they did save huge amounts on dividends that they would have been forced to pay out.  Many believe that more money will be needed as losses continue to mount at Citibank.

The Dow sank by 119 points yesterday.  The big news of the day was the release of the GDP figures for the last quater of 2008 and it was negative 6.2% on an annual basis.  the economy is contracting big time.  Here is the story:(note the huge fall in exports..the only supposedly bright light to the usa economy)

2.  USA economy shrinks by 6.2%

U.S. economy shrank at 6.2 pct rate in 4th-qtr

WASHINGTON, Feb 27 (Reuters) - The U.S. economy contracted more sharply than initially estimated in the fourth quarter, government data showed on Friday, as exports plunged and consumers cut spending by the most in over 28 years amid a severe recession.

The Commerce Department said gross domestic product, which measures the total output of goods and services within U.S. borders, fell at an annual rate of 6.2 percent in the October-December quarter, the deepest slide since the first
quarter of 1982. The government last month estimated the drop in fourth-quarter GDP at 3.8 percent.

The weaker GDP estimate reflected downward revisions to inventories and exports by the department.

The decline was worse than analysts' expectations for a 5.4 percent contraction in fourth-quarter GDP. The economy expanded 1.1 percent in 2008, the slowest pace since 2001, the department said.

Consumer spending, which accounts for more than two-thirds of domestic economic activity, dropped at a 4.3 percent rate, the biggest fall since the second quarter of 1980, as household wealth plunged. That compared with a 3.5 percent fall estimated last month.

Exports, until recently one of the few pillars supporting the distressed economy, tumbled at a 23.6 percent annual rate, the steepest plunge since 1971. That was revised from the 19.7 percent drop estimated in last month's report.

Inventories, which minimized the fall in GDP last month after being estimated up a surprising $6.2 billion, were revised to show a $19.9 billion decline in the fourth quarter.

Business investment fell at a 21.1 percent rate, the largest drop since 1975, from a previously estimated 19.1 percent. Residential investment fell 22.2 percent in the fourth quarter.

The deteriorating economy is dampening inflation pressures, with the personal consumption expenditures price index diving a record 5 percent. Excluding food and energy, prices rose 0.8 percent in the fourth quarter, the smallest advance since a matching increase in 1997.

-END-

3. Eastern European Plight:

Throughout the night, we were greated with stories from Bloomberg on the plight of Eastern European nations.  The Hungarian foreign minister was seeking loans of 230 billion dollars for the entire region from the IMF...funds that it does not have.

I saw one commentary where the German government must make a decision to go against the ECB and loan money to bail out Eastern European countries or abandon the Euro altogether.

I guess Germany has reached the crossroads.  As Yogi Berra once said:  "when you reach a fork in the road..take it".

Germany has reached this important crossroad in the short 10 year life span of the Euro.  My bet?  they will abandon the Euro and go alone!!. end

This is what Jessie has to say on the GDP and the economy in general:

 

Jesse…

GDP Number Far Worse than Expected by Most Economists (But Not Here)

The Fourth Quarter GDP number came in at a negative 6.2% versus the original negative 3.8 percent announcement earlier this year.

That is not a big adjustment. It is a HUGE adjustment. That first number was so obviously cooked by a high side inventories estimate and a lowball chain deflator that it was a knee-slapping howler to anyone who is following this economy closely.

This decline did not happen overnight. It is merely being reported that way.

There should be little doubt now in most people's minds, by now we would hope, that Bernanke, Greenspan, Paulson, and many in the Bush Administration were deceiving us about the state of the economy, for years, almost routinely as a matter of course.

That is important to understand. This was no act of God, no hurricane or meteor strike. And a lot of folks on Wall Street and in Washington playing dumb now knew what was coming. You can decide their motives for yourself, but fear and greed should be high on the top of your list.

The economy has been rotten for a long time, since at least 2001 if not before, and as it worsened more and more money was taken off the table by the Bush Administration and their corporate cronies through no bid contracts and welfare for the wealthy. Coats of paint were slapped over the growing problems, fraud and corruption....

http://jessescrossroadscafe.blogspot.com/2009/02/gdp
-number-far-worse-than-expected-by.html
.

 

end.

 

After receiveing terrific news on the GDP front and on Eastern Europe's plight, we got word on the Fannie Mae's earnings.  They lost 25 billion dollars in the quarter and their liabilities exceeded their assets.  They need to draw on the 200 billion line of credit given to them by the Fed.  Here is the story:

4. Fannie Maes loses $4.47 per share and calls on 15.9 billion line from the Government:

17:44 FNM Follow-up: Fannie Mae reports Q4 EPS ($4.47) (0.49)
FNM's mortgage credit book of business increased to $3.1 trillion as of December 31, 2008 from $2.9 trillion as of December 31, 2007. The company expect that the current crisis in the U.S. and global financial markets will continue, which will continue to adversely affect financial results throughout 2009. FNM expects mortgage debt outstanding to shrink by approximately 0.2% in 2009 and continue to expect the level of foreclosures and single-family delinquency rates to increase further in 2009. Following a decline of approximately 9% in 2008, FNM expects that home prices will decline another 7% to 12% on a national basis in 2009. The company continues to expect its credit loss ratio (which excludes SOP 03-3 fair value losses and HomeSaver Advance fair value losses) in 2009 will exceed its credit loss ratio in 2008.

 

and

17:46 FNM Follow-up x2: Fannie Mae reports Q4 EPS ($4.47) (0.49)
At December 31, 2008, the company's total liabilities exceeded its total assets by $15.2B. The Director of FHFA submitted a request on February 25, 2009 for funds from Treasury on its behalf under the terms of the senior preferred stock purchase agreement to eliminate its net worth deficit as of December 31, 2008. FHFA requested that Treasury provide the funds on or prior to March 31, 2009.

5. General Electric cuts dividend:

At about 2:30 General Electric notified Wall Street that it was cutting its dividend to 10 cents per quarter instead of 1.24.  They were saving 9 billlion dollars per year as they needed to shore up their GE capital division.  Here is the story:

 

14:19 GE General Electric confirms cutting quarterly
dividend by 67.7% to $0.10 from $0.31 (9.00 -0.10) The press release confirms the earlier reports on CNBC, says the dividend cut is effective for 2H09 and will preserve appx $9B for GE on an annual basis. Jeff Immelt says the decision is the right precautionary action at this time to further strengthen GE for the long-term, while still providing an attractive dividend. Immelt says GE continues to execute well and generate strong cash flow. Immelt says GE has achieved all of its capital and liquidity goals ahead of plan, including lower commercial paper, reduced leverage ratios and solid debt funding. Immelt says GE currently does not have any plans to raise more equity. Recall GE had said at its 6-Feb it would evaluate the dividend in 2H09.

 

The street initially liked the plan but cooler heads prevailed and the rush to sell stock prevailed.  GE succumbed to its low for 19 years at $8.58.

6. Bonds Plummet:

The real story was totally overlooked by Wall Street.  The bonds collapsed with the long bond trading down by 1 and 2/3 points to 123.36 from 1.2516. Usually we have bonds moving in opposite directions to the Dow.  Not yesterday:  the Dow and the bonds plunged together.

Also remember that the 10 year is used to supply mortgages to our beleaguered mortgagees.  Its yield climbed above 3% to 3.03%.  Mortgage rate money is climbing instead of falling which is going counter to Obama's plan.

7. Berskire Hathaway Disappoints Wall Street:

Warren Buffet is not feeling to well these days.  His earnings released at the close yesterday fell all the way down to 76.00 dollars per share from year earlier figures of 1,906.00 per share.  Berkshire stock has fallen by 44% so far this year.  To boot, Buffet is underwater on his derivatives.

Mr Buffet described derivatives as financial  weapons of mass destruction and yet he went into them.  He purchased S and P derivatives betting the Dow rises over the next 10 years.  If the Dow plummets to zero he loses 35.4 billion dollars.  Here is some of the story:

 

Berkshire Results May Be Worst Ever, by Buffett Gauge

Feb. 27 (Bloomberg) -- Berkshire Hathaway Inc. may report its worst results since Warren Buffett took over in 1965, based on a measure the billionaire chairman cites on the first page of his firm’s annual letter to shareholders.

Losses in Berkshire’s stock portfolio and writedowns on derivative bets tied to equity markets may have caused book value per share, a measure of assets minus liabilities, to fall by 8.5 percent, according to Gary Ransom, an analyst with Fox- Pitt Kelton Cochran Caronia Waller. That ratio declined only once before on Buffett’s watch, falling 6.2 percent in 2001…

-END-

And this from bloomberg:

Berkshire Profit Plunges 96% on Stock Market Bets (Update1)

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By Erik Holm and Andrew Frye

Feb. 28 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. posted a fifth-straight profit drop, the longest streak of quarterly declines in at least 17 years, on losses from derivative bets tied to stock markets.

Fourth-quarter net income fell 96 percent to $117 million, or $76 a share, from $2.95 billion, or $1,904 a share, in the same period a year earlier, the Omaha, Nebraska-based firm said in its annual report.

Berkshire, where Buffett serves as chairman, chief executive officer and head of investing, suffered as the benchmark Standard & Poor’s 500 Index turned in its worst year since 1937. Liabilities widened on derivatives linked to world equity markets, though the contracts don’t require Berkshire to pay out until at least 2019, if at all.

“This is an abnormal time,” said Tom Russo, a partner at Gardner Russo & Gardner, in an interview before the earnings were released. The derivatives, Russo said, “are pegged to a market that’s declining, so you’re going to see some losses on those.”

Berkshire shares have fallen 44 percent in the past year as the value of the firm’s top stock holdings dropped and losses increased on the derivatives. Nineteen of the top 20 stocks in Berkshire’s U.S. portfolio, valued at $51.9 billion as of Dec. 31, declined last year. Coca-Cola Co., Berkshire’s top holding, dropped 26 percent. American Express Co. plunged 64 percent. Oil producer ConocoPhillips fell 41 percent.

Derivative Bets

Book value, a measure of assets minus liabilities, fell 9.1 percent in the three months ended Dec. 31 to $109.3 billion on the declines in the equity and fixed-income portfolios and the derivatives writedown. Berkshire’s liability on equity derivatives grew about 49 percent in the quarter to $10 billion.

“Derivatives are dangerous,” Buffett said in his annual letter to shareholders that accompanies the yearend results. “Our expectation, though it is far from a sure thing, is that we will do better than break even and that the substantial investment income we earn on the funds will be frosting on the cake.”

Book value per share slipped 9.6 percent for all of 2008, the worst performance since Buffett took control in 1965. The only other annual decline was a 6.2 percent drop in 2001.

‘Owner’s Manual’

In his “owner’s manual” for Berkshire shareholders, Buffett says he considers book value to be an objective substitute for the best, albeit subjective, measure of a firm’s success: a metric he calls intrinsic value. Buffett doesn’t provide a number for intrinsic value.

Net income fell 62 percent to $4.99 billion for all of 2008, with storm claims from Hurricanes Ike and Gustav contributing to the decline. Industrywide, insurers faced $25.2 billion in claims on natural disasters in 2008, the most since the record storm season of 2005, a trade group said last month.

Berkshire’s derivative contracts were sold to undisclosed buyers for $4.85 billion as of Sept. 30. Under the agreements, Berkshire must pay out if, on specific dates starting in 2019, four market indexes are below the point where they were when he made the agreements. Buffett, recognized as one of the world’s pre-eminent investors, gets to use the money in the interim.

The worldwide recession and global contraction of the credit markets is giving Buffett, 78, opportunities to invest some of the firm’s cash hoard, which was worth more than $30 billion on Sept. 30.

Goldman, Harley

Berkshire agreed in the past six months to purchase preferred shares of General Electric Co. and Goldman Sachs Group Inc., and made deals to buy debt in firms including motorcycle- maker Harley-Davidson Inc., luxury jeweler Tiffany & Co. and Sealed Air Corp., the maker of Bubble Wrap shipping products.

Berkshire is commanding yields as high as 15 percent at a time when potential rivals are no longer able to make such investments.

“He’s been able to put a lot to work,” said Russo, whose largest holding is Berkshire stock.

The derivatives are tied to four stock indexes -- the S&P and three others -- that would all have to fall to zero for Berkshire to be liable for the entire amount at risk, which was $37.1 billion as of November and can fluctuate with currency valuations. The liabilities on the derivatives are accounting losses that reflect the falling value of the stock indexes, not cash Berkshire has paid out.

Ice Cream, Jets

Buffett built Berkshire over the past four decades with dozens of acquisitions, buying companies that make candy, sell ice cream and lease corporate jets. The firm typically gets about half its profit from insurance operations, which Buffett has said are attractive because they offer a similar business model to the derivative agreements, allowing him to invest policyholder premiums until the money is needed to pay claims.

Declining investments and falling property and casualty rates caused fourth-quarter profit declines or losses at 21 of the 22 companies in the KBW Insurance Index that reported results so far.

To contact the reporters on this story: Erik Holm in New York at eholm2@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net.

Last Updated: February 28, 2009 09:29

 

8.  Two banks succumb as FDIC closes banks in Nevada and Illinois:

This just came in:  two banks were foreclosed last night:

 

e
Regulators in Nevada, Illinois Close Banks as Recession Deepens
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By Ari Levy

Feb. 28 (Bloomberg) -- Banks in Nevada and Illinois were seized by regulators, bringing this year’s tally to 16, as tumbling home prices and surging unemployment caused more borrowers to fall behind on loan payments.

Security Savings Bank of Henderson, Nevada, and Heritage Community Bank of Glenwood, Illinois, with combined assets of $471.2 million, were shut by state regulators and the Federal Deposit Insurance Corp. was named receiver, the FDIC said yesterday. Bank of Nevada in Las Vegas is assuming Security Savings’ $175.2 million in deposits, while Heritage Community’s $218.6 million will go to MB Financial Bank of Chicago.

“Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage,” the FDIC said.

As regulators wrap up the busiest month for bank failures since 1993, they’re preparing to replenish the FDIC’s insurance fund, which dwindled by 45 percent in the fourth quarter from the previous three months to $18.9 billion. The FDIC said it will charge U.S. banks a one-time assessment and increase other fees amid estimates that bank closures could cost the fund $65 billion through 2013.

The FDIC shuttered 25 banks in 2008, including Washington Mutual Inc., the biggest U.S. bank to fail last year, and IndyMac Bank Inc., the second-largest. The 10 banks closed in February were in Oregon, California, Florida, Nebraska, Illinois, and Georgia and Nevada as foreclosures rose across the country.

Deposit Insurance

“We’re taking steps today to ensure that the deposit insurance system remains sound,” FDIC Chairman Sheila Bair said yesterday during FDIC’s board meeting at the agency’s Washington headquarters.

The one-time emergency fee of 20 cents per $100 in insured deposits would be collected in the third quarter and would generate $15 billion, according to FDIC staff members. In December, the FDIC said it would double premiums banks pay in an effort to replenish the fund. First-quarter premiums were increased by 7 cents for each $100 of insured deposits to rates ranging from 12 cents to 14 cents per $100 at most banks.

Closing Security Savings and Heritage Community will cost the insurance fund an estimated $100.7 million, the FDIC said.

The number of banks on the FDIC’s “problem list” rose 47 percent to 252 in the quarter. The FDIC doesn’t divulge the banks’ names.

The FDIC regulates banks and insures deposits at 8,305 institutions with $13.9 trillion in assets. As many as 1,000 U.S. banks may fail in the next three to five years as losses mount on commercial real estate loans, RBC Capital Markets analysts said in a Feb. 9 report.

Banking Losses

The U.S. banking industry posted its first quarterly loss since the savings-and-loan crisis, losing $26.2 billion in the last three months of 2008. Financial firms worldwide have posted more than $1.1 trillion in losses and writedowns since 2007 on soured loans and related securities. Unemployment climbed to 7.6 percent in December from 7.2 percent the previous month, and housing prices in 20 U.S. cities declined 18.5 percent from a year earlier, the fastest drop on record.

The FDIC is selling loans held by failed banks at a discount to entice buyers amid fears of increased losses as the recession worsens. Through Feb. 20, the assets of four community banks had been sold this year to healthier rivals at a combined discount of $107 million, the FDIC said, compared with only one such deal last year.

MB Financial agreed to acquire $230.5 million of Heritage Community’s assets at a discount of $14.5 million. Bank of Nevada is purchasing $111.3 million of Security Savings’ assets.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net.

Last Updated: February 28, 2009 00:00 EST

end.

It seems that that the CFTC is getting a little antsy about concentration.  Enforcement in getting into the act concerning oil:

Federal agency opens investigation into oil sale
Friday February 27, 12:11 am ET

…The Commodity Futures Trading Commission said Thursday it was closely monitoring trades on Nymex, including activities by the fund.

The fund typically sells the contracts it holds for a particular month in one day then buys into the next month's contract, a maneuver that is called a "roll."

"CFTC enforcement staff are investigating the trading activity of multiple market participants, including United States Oil Fund LP, in crude oil markets concerning the February 6, 2009 roll," Stephen J. Obie, acting director of the CFTC Division of Enforcement, said in a statement…

-END-

And I would hope we will hear some comments from the CFTC then about closely monitoring the silver trading by JP Morgan Chase.

 

Here are some prices on closing for financial issues:

Some examples of the spread of this flesh eating bacteria today, with many firms racing towards a price of zero...

*Citigroup: $1.50, down 96 cents, a new low.
*Bank of America: $3.95, down $1.30, back at its lows.
*GE: $8.58, down 59 cents, new low close.
*Metropolitan Life: $18.46, down $5.53 and not from a low.
*AIG: 42 CENTS, A NEW LOW CLOSE AND DOWN A DIME!

 

The Federal Debt was just released and it shows a whopping gain from Wednesday:

 

the new Federal Debt is as follows:

10,881,159,722,022.36.

This is basis Feb 26.09

On Feb 25.09 is was:

10,837,499,231,127.11.

 

The printing press is on 24/7.

I would also like to point out to you that the 3rd auction on the bonds went badly and that was the reason for the bond yields rising and bond prices falling.

We also got word that the derivatives at JPMorgan is smoldering as those interest rate swaps are burning up and the smoke suffocating the off-balance sheet of Morgan. 

Here is some of the passages on this subject shared with Bill Murphy from a source inside JPMorgan:

As to JPM (J. P. Mortgage?), I spent five hours with a guy from a peer institution who told horror stories and wrote a summary for limited distribution (pasted below). His explanation of JPM is compelling and consistent with your own. I believe he was being fully truthful...

…How did we go so far off the tracks? He offered a few nuggets that seemed to explain the credit bubble. To reiterate, there really was no adult supervision. The guys putting these packages together certainly had some sense that they were crazy but nobody said stop. Government regulators being paid $100k couldn't tell guys making $20 million to take a hike. The senior managers loved the money flows. Cubicles--millions of cubicles--were staffed with engineers, chemists, physicists, and mathematicians from the best colleges in the country with no knowledge of the history of markets, fat tails, and past human follies, only how to financially engineer.

Several critical mutations occurred over time:

1. The average career age in the business is something like 7 years. A twenty year veteran is a very old man. The creators of these new-fangled products understood the toxicity at some level. As they retired, however, the next generation of twenty somethings had zero sense of risk. They were simply told which button to push and which lever to pull to make money. Nobody was driving the cab at all.

2. The money overwhelmed the system. It was like when the computers gained consciousness in Terminator. The money pushed all regulations aside. It bought deregulation, politicians, and anything else necessary to keep the money machine growing. Nobody dared yell stop because so damned much money was being made.

3. Greenspan became a believer--he lost consciousness....

So where are we now, and where are we heading? This is the bad part: I thought I was the pessimist. Sheesh. He was describing a system infected by flesh eating bacteria. Every day looks more dire than the previous day. The solutions being proposed look feeble, and the Fed looks both powerless and confused. The good bank/bad bank model that lit up the market yesterday was suggested to be flawed because the good banks would turn bad soon thereafter. When asked about seemingly stable local banks, he suggested they too would become infected.

I expressed shock that JPM not only didn't bring the system to its knees but was the last bank standing. That Jamie Dimon is quite a guy, eh? Apparently, I inferred from the answer (am nervous about explicitly attributing by quote) that JPM is on a don't ask/don't tell policy; the Fed simply cannot handle another mega-catastrophe while they wrestle with the fully-insolvent Citigroup and Bank of America. I suspect that JPM was told to keep everything looking peachy to buy time. (Maybe this was what caused the delayed reaction of Bank of America when it should have been gagging on its own vomit months ago.)

Jack Welch got very low grades for engineering his balance sheet, moving to shorter duration debt to make GE profitable. The car industry is DOA. Germany and the UK are battling for the bottom rung of the sovereign ladder (above Iceland hopefully.) Why has the NYC housing market held up?

Supposedly, it is only a matter of time: "New York may look like Detroit in ten years." When peers claimed housing would bottom after a 40% drop, he asked "Why will it stop there?" No answer. Last but not least, the failed German bond auction was deemed catastrophic: Who is gonna buy up our trillions? No answer.

In short, he sees no way out of this mess without serious pain. Despite a deflationary slant today, he sees inflation and spiking interest rates as the risk going forward.

***

In summary, we have bonds falling as we have no foreign takers for our bonds.  The usa must resort to buying their own debt with printed money.

All major companies are faltering.  Even "King" General Electric is down to $8.58.  Eastern Europe is in turmoil as their deficits  are monstrous!!

If you were to take all the 500 S and P today and total all  their supposed earnings for the first quarter of 2009, it will be negative for the year.  If you take out all of the negative financial stocks and include them just as a zero, earnings for the year will be no more than 8.00.

If you give a multiple of 10 x , you have a total S and P then at 80.

It closed at 735.00.  The Dow has a long way to go and the bottom is nowhere to be seen.

 

I have another visit on Monday with my Dentist ( and a fellow reader) and then a big dinner meeting with our group on the economy.  I will deliver late and a little sore.

Speak to you on Monday

Harvey.

 

 

 

 

Thursday, February 26, 2009

Feb 26.09 commentary...important.

Good evening Ladies and Gentlemen:
 
Gold closed down by 24.00 to 940.80.  Silver closed down by 95 cents to 12.96.
 
The open interest on the gold comex rose by 642 contracts despite gold's drubbing yesterday. Clearly short sales were of the order of the day.  The OI on silver fell by 3100 contracts to 98000.  A few long positions were liquidated.
 
This came to us early in the day.  A former treasury official in the Reagen administration basically states that the USA are involved in the illegal leasing of gold.  Here is the story:
 
Ex-Treasury official confirms gold suppression scheme

"How long can the US government protect the dollar's value by leasing its gold to bullion dealers who sell it, thereby holding down the gold price? Given the incompetence in Washington and on Wall Street, our best hope is that the rest of the world is even less competent and even in deeper trouble. In this event, the US dollar might survive as the least valueless of the world's fiat currencies." … Paul Craig Roberts, assistant secretary of the treasury in the Reagan administration.  end
 
The gold price supression scheme actually started one administration later under the helm of  Bush Sr. and carried on until today.
 
Today, all commodity rose except silver and gold.   Oil closed up by $2.78 and the entire grain complex rose.  The dollar fell as word is spreading on the possibility of massive inflation with the huge amt of dollars printed by the Fed.
 
Speaking of printing money, Obama released his budgetary forcast for 2009-2110 and he revealed that the economy will have to undergo a huge 1.75 trillion dollar deficit.  The market was stunned with his announcement.  First the story:
 
06:18 White House sees US deficit to reach $1.75T in f09 -- Dow Jones, citing an administration official
The figure includes a $250B placeholder for possible bank rescue, which could fund $750B in assets. The White House leaves Fannie (FNM) and Freddie Mac (FRE) operations off the budget. The deficit is expected to be 12% of GDP this year. The budget will also propose raising taxes on investment managers' "carried interest." The budget is officially to be released at 11 ET.
 
end
 
I want everyone to know, that there are two aspects on this budgetary deficit left out:  1.  Fannie and Freddie funding and 2.  the Iraq and Afghanistan funding.
 
My gosh!,  later in the day, Fannie ran out of money and needs to draw on the 200 billion dollars set up for it by the Obama adminsitration.  Fannie lost 15.9 billion dollars in the quarter and thus they have blown all value to existing shareholders.  The company is basically nationalized completely by the Fed:
 
Here is the story from Bloomberg:
 
Fannie to Draw $15.2 Billion From Treasury After Loss (Update2)
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By Dawn Kopecki

Feb. 26 (Bloomberg) -- Fannie Mae, the mortgage-finance company seized by regulators in September, asked the U.S. Treasury for $15.2 billion in capital and raised the possibility of requesting more aid after a sixth consecutive quarterly loss drove its net worth below zero.

A wider fourth-quarter net loss of $25.2 billion, or $4.47 a share, pushed the company to make its first draw from a $200 billion federal lifeline, Washington-based Fannie said in a filing today with the Securities and Exchange Commission. Credit quality deteriorated and debt costs soared, forcing the company to record higher expenses and write down the value of its assets.

“We expect the market conditions that contributed to our net loss for each quarter of 2008 to continue and possibly worsen in 2009, which is likely to cause further reductions in our net worth,” Fannie said in a statement accompanying the filing.

Fannie and smaller competitor Freddie Mac, which own or guarantee almost half of the nation’s residential mortgage debt, have become integral components of President Barack Obama’s plan to help as many as nine million Americans avoid foreclosure. Last week the Treasury doubled its emergency capital commitment for each company from $100 billion as the government leans on Fannie and Freddie to modify or refinance more delinquent loans.

“These things aren’t being run for profitability; they are being run as a public policy tool,” Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, said in an interview prior to the earnings release.

More Losses to Come

McLean, Virginia-based Freddie in November tapped $13.8 billion in aid -- which the Treasury makes through preferred stock purchases -- after a record $25.3 billion third-quarter loss. Freddie has said it may seek as much as $35 billion more when it reports fourth-quarter results.

Fannie said its net worth, or the difference between assets and liabilities, fell to negative $15.2 billion on Dec. 31, from $9.4 billion on Sept. 30, according to the statement.

The company increased reserves for future credit losses to $24.8 billion last quarter from $15.6 billion in the most recent third quarter. Fannie has posted net losses totaling more than $63 billion since the third quarter of 2007, while Freddie has reported about $29.9 billion.

“These guys are going to lose money for quarters to come,” said Miller, one of only three analysts actively following Fannie and Freddie. “I don’t think anybody can even attempt to model in the degree of losses.”

Penny Stock

The government-run conservatorships won’t end until the mortgage market recovers and the companies regain profitability, Federal Housing Finance Agency Director James Lockhart said in a Feb. 19 Bloomberg Television interview.

Fannie and Freddie are the largest U.S. mortgage-finance companies, owning or guaranteeing about $5.3 trillion of the $12 trillion home-loan market.

The amount of nonperforming loans that Fannie guarantees for other investors doubled to $98.5 billion at the end of the fourth quarter from $49.3 billion in the third quarter, according to the filing. The nonperforming loans that Fannie owns jumped 45 percent to $20.5 billion from $14.1 billion in the third quarter.

FHFA put the companies under its control Sept. 6 and forced out management after examiners said the two may be at risk of failing amid the worst housing slump since the Great Depression. The Treasury at the time pledged as much as $100 billion for each company as needed when the value of their assets drops below the amount they owe on obligations.

Fair Value

Fannie and Freddie shares, which were above $30 in March, have been trading at less than $1 since December. Both stocks closed today at 49 cents in New York Stock Exchange composite trading.

Fannie was created in the 1930s under President Franklin D. Roosevelt’s “New Deal” plan to revive the economy. Freddie was started in 1970. The companies were designed primarily to lower the cost of home ownership by buying mortgages from lenders, freeing up cash at banks to make more loans. They make money by financing mortgage-asset purchases with low-cost debt and on guarantees of home-loan securities they create out of loans from lenders.

The fair value of Fannie’s assets fell to negative $105.2 billion in the fourth quarter from $35.8 billion a year ago.

Debt Market Access

The company also said its access to the debt markets is still challenging.

“Although our access to the debt markets has improved noticeably since late November 2008, we expect continued pressure on our access to the debt markets throughout 2009 at economically attractive rates,” Fannie said in the filing. “Further, we expect the pressure will become increasingly great as we approach the expiration of the Treasury credit facility at the end of 2009.”

The difference between yields on Fannie’s two-year debt outstanding and two-year Treasuries rose to a record 1.82 percentage points on Nov. 20, from 1.02 percentage point on Sept. 30, before falling to 0.24 percentage point today, according to data compiled by Bloomberg. The company today sold $15 billion of debt in a record sale.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Last Updated: February 26, 2009 19:35 EST
Lets talk about events of today;
 
Early in the session with the Dow comfortably up by 80 points or so, the bonds started to tank as the auction process revealed that there were little foreign involvment in the purchase of bonds.  If you remember me telling you that the first auction is the 2 yr notes which sell quite easily.  The 5 and 10 yr and 30 years go on the last two days.  The quantum of bonds equal to 92 billion dollars, which is astronomical.   Below is a graphic image of the  30 year bond trading today.  Notice how the dow started tanking at the EXACT same time as bond prices rising.  The cartel must preserve the bond market when the auction is having difficulty unloading US debt.  I also want to point out the JPMorgan has over 120 trillion dollars of future bonds and must keep interest rates low to prevent falling into an abyss.
 
 
 
As a point of interest , the Dow plummeted by 88 points after being up by 80 points for a differential of 178 points.  The bonds needed the rescue today.
 
***
The usa provided the number of banks in trouble.  They do not list the banks..only saying they are in financial need. The total rose by 50% to 252 banks: It also stated that the usa bankig industry reported a loss of 26.2 billion dollars in the 4th quarter.
 

US list of problem banks soars to 252 in 4th quarter

WASHINGTON, Feb 26 (Reuters) - The number of problem U.S. banks and thrifts rose to 252 in the fourth quarter of 2008, up nearly 50 percent from 171 at the end of the prior quarter, marking the highest number since June 1995, the U.S. Federal Deposit Insurance Corp said on Thursday.

The sharp rise in problem banks came amid expectations that hundreds of banks could fail in 2009 as the U.S. economy struggles to turn itself around. The FDIC does not release the names of problem banks.

The FDIC issued bleak figures for the fourth quarter as the U.S. banking industry reported a loss of $26.2 billion, the first quarterly loss since 1990. That compared to a profit of about $1 billion in the third quarter and $575 million in the fourth quarter of 2007.

-END-

 
 
JPMorgan yesterday, stated that they were going to report good earnings.  I guess that is why they must shed 12000 employees:
 

JPMorgan now cutting up to 14,000 jobs

NEW YORK (Reuters) - JPMorgan Chase & Co said it is cutting up to 14,000 jobs, more than previously disclosed, as it tries to reduce costs in the face of a slumping economy and higher credit losses.

The second-largest U.S. bank on Thursday said it now expects to shed as many 12,000 jobs from integrating the former Washington Mutual Inc , up from 9,200 announced in December. It also expects to cut up to 2,000 investment banking jobs.

JPMorgan announced the cuts in an all-day presentation to investors. The reductions are intended to help the New York-based lender weather the current economic turmoil, as its customers struggle with falling house prices, tight credit and increasing mortgage and credit card defaults….

-END-

 
As more and more people are laid off, the less the Fed coffers are filled and the less the state has in the form of sales tax.  Revenues are plummeting all over the place.
 
General Motors reported in today and they showed a loss greater than analyst had expected...and they did not expect much.  Here is GM's announcment:
 
07:05 GM General Motors reports Q4 adjusted EPS ($9.65) vs Reuters ($7.40) (2.55)
Company reports revenues of $30.80B. End of year cash equivalents were $14B.
 
Later in the day, ric Waggoner reported that next month  (actually next week ) they need another 2 billion dollars to keep going.
I guess the money gravy train does not stop flowing.
 
New home sales figures were released today.  This is generally a good sign of economic activity as these are the new homes built and it shows the strength of the homebuilders...they were pretty dismal;
 

10:00 Jan New Home Sales 309K vs. consensus 324K
Dec figure revised to 344K from 331K.
* * * * *

U.S. January new home sales slump to record low

WASHINGTON, Feb 26 (Reuters) - Sales of newly built U.S. single-family homes slumped to a record low in January, while prices fell to their weakest level in five years, according to a government report on Thursday that highlighted the continued distress in the housing market.

The Commerce Department said sales plunged 10.2 percent to a 309,000 annual pace, the lowest on records dating back to 1963, from an upwardly revised 344,000 in December.

Economists polled by Reuters had forecast sales at a 330,000 rate in January.

The median sales price in January tumbled 13.5 percent to $201,100 from a year earlier, the lowest level since December 2003, the department said. The percentage decrease was the largest since July 1970. The median marks the half-way point, with half of all houses sold above that level and half below…

 
We then got Durable goods.  These are rather large purchases where the good lasts greater than a few years. This figure was also lousy!!:
 

US durable goods orders fall to 6-year low in Jan

WASHINGTON, Feb 26 (Reuters) - New U.S. orders for long-lasting manufactured goods fell for a sixth consecutive month to a six-year low in January, a government report showed on Thursday, as a global slump crimped exports and domestic spending faltered.

The decline in durable goods orders and its major components was much more than expected.

The Commerce Department said durable goods orders dropped 5.2 percent to $163.8 billion in January, the lowest level since December 2002. Orders for the prior month were revised down to a drop of 4.6 percent, previously reported as a 3 percent contraction.

New orders excluding transportation dropped 2.5 percent in January, while motor vehicles and parts fell 6.4 percent.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 5.4 percent in January. The previous month was revised to show a 5.8 percent plunge, previously reported as a 3.2 percent drop.

Analysts polled by Reuters had expected overall new orders to fall 2.5 percent in January and orders excluding transportation to drop 2.1 percent.

-END-

However, the most startling development today was release of the jobless claims.  These come out every Thursday and the number jumped big time as the number of jobless jumped to 613000.  The total receiving benefits increased to 5.1 million people, the highest since 1982.  Here is the story:
 
 
 

U.S. economic news:

08:30 Jobless claims for w/e 21-Feb 667K vs. consensus 625K
Prior week revised to 631K from 627K. Continuing claims for w/e 14-Feb 5.112M vs. consensus 5.025M. Prior week revised to 4.998M from 4.987M.
* * * * *

US jobless claims up, continued claims at record

WASHINGTON, Feb 26, (Reuters) - The number of U.S. workers continuing to claim jobless benefits notched a fresh record in the second week of February, Labor Department data showed on Thursday, while new claims for aid were at the highest level since 1982.

The number of people remaining on the benefits roll after drawing an initial week of assistance increased by 114,000 to a more-then-forecast 5.112 million in the week ended Feb 14, the most recent week for which data is available. Analysts estimated so-called continued claims would be 5.00 million.

-END-


* * * * *

We have received word that JPMorgan has got some serious problems with their derivatives.  We suspect the interest rates and silver shorts as prime problems for this mega bank.  Here is some excerpts which may interest you:
 

Mexico Mike put forth some excellent inquiry regarding the zero sum nature of the derivatives problem. In a simple world of simple derivatives securities, like basic commodities and stock options, in which the number of contracts will never exceed the amount of the underlying asset or commodity, futures/derivatives would be a zero sum game.

However, let's look at a very simplified example as to why derivatives have exploded dangerously beyond their original intent and why they are not even close to being zero sum anymore: JPM (hypothetically, of course LOL) is short futures contracts representing 3x the silver inventory on Comex. Every person who is long wants delivery. What does JPM do if it can't get enough silver to satisfy delivery AND it can't come up with the amount of cash required to settle the rest of the contracts in cash? Not only is JPM thrown into bankruptcy, the investors holding long silver positions that didn't get delivered lose the cost of their futures contracts. What happened to the cash JPM took in from shorting contracts that it couldn't deliver? It's gone. Now let's complicate it even more. A lot of the longs are legitimate commercial users of silver who didn't get delivered had obligations predicated on getting the silver delivered. They are out of the cost of the contract AND they are on the hook for obligations they took on based on getting delivery...and so on...This is not a zero sum game.

This is just a simplified example of a problem that exists in the credit default swap market (the asset-backed and corporate bond and bank debt market, mostly) to the tune of trillions. And not only are these credit default swaps causing this kind of problem, banks and insurance companies who have been involved in complicated transactions involving credit default swaps have done so on a very leveraged basis.

And up to this point in time the big problem in the financial system is coming from credit default swaps. A much larger category of swaps is interest rate swaps. Many of these are zero sum that can be cancelled out by counterparties if necessary. But a lot of them can not be cancelled because the swaps allowed parties to the swap to engage in other business transactions predicated on the having certain payouts or interest rate "basis" insurance from the interest rate swap. In other words, a party engages in an interest rate derivatives trade, then goes on to execute other business decisions based on knowing they can always collect a pre-defined amount of money under any circumstance base on the interest rate swap it has purchased - except when the counter-party to the interest rate swap defaults. This sets off a chain of contingent liabilities. When counter-party default starts permeating the interest rate swap market we may well have financial Armageddon. I hope this helps to clarify Mexico Mike's question from yesterday's Midas…

 
Today, Bloomberg announced that AIG may get taxpayer to buy all of the credit default swaps underwritten by AIG.  The counterparty that will be saved by this will be Goldman Sachs and there must be an inquiry into this if it passes:
 
 

AIG Rescue May Include Credit-Default Swap Backstop

This irritates me more than the manipulation of the metals market.

Obama/Geithner are going to use taxpayer money to let all of the banking counter-parties to AIG's nuclear waste derivatives exposure off the hook. This has Goldman Sach's footprints all over it, since Goldman CEO Blankfein was the ONLY private sector party to the AIG bailout meeting held last September by the Working Group.

Well, let me tell you something. Einstein Obama has just let the ghost out of the banking woodpile with this plan. This plan now overtly ackknowledges that the problem underlying the entire financial system is these derivatives. The same derivatives that Clinton, Greenspan and Obama's new SEC chief fought very hard to prevent from being deregulated back in the 1990's. This is overt admission that AIG is nothing but a pile of worthless derivatives to the tune of at least $1 trillion (see my discussion of AIG's off-balance-sheet liabilities back in October).

 

and this from Bill Murphy..  I am onto this:

I will have a bit more tomorrow, but anecdotally am receiving additional input that the situation at JP MORGAN CHASE is not good ... that they have serious derivatives and counterparty issues, and yes, the Fed is petrified their problems will become public knowledge, so they are playing mum ... while they bomb gold and silver, of course, to downplay the crisis issue.

We are seeing financial unrest throughout the world.  Look at what is happening in various countries:

 

Financial crisis sparks unrest in Europe

Feb 26 (Reuters) - Thousands of Opel workers from around Germany took part in a mass rally on Thursday demanding parent General Motors (GM.N) scrap plans for plant closures in Europe.

The global financial and economic crisis has sparked many protests in parts of Europe. Here are some details:

* BOSNIA -- Workers of Bosnia's only alumina producer Birac protested on Feb. 9 in Banja Luka, demanding salary payments and government support to offset falling metal prices.

* BRITAIN -- British workers held a series of protests at power plants, demonstrating against the employment of foreign contractors to work on critical energy sites.

-- The protests follow a week-long dispute at the Total-owned Lindsey oil refinery in Lincolnshire, which resulted in Total agreeing to hire more British workers on the project. Workers voted to end the unofficial strike on Feb. 5.

* BULGARIA -- Police officers, banned by law from striking, have held three "silent" protests since December to demand a 50 percent pay hike and better working conditions. Bulgaria, the poorest EU nation, has been hit by protests demanding the government take measures to shore up the economy.

-- Farmers blocked the only Danube bridge link with Romania and rallied across Bulgaria on Feb. 4 demanding the government set a minimum protective price for milk and stop imports of cheap substitutes…

***
 
With respect to gold ETF GLD, the number of oz of gold remains constant for the 4th day in a row.
The silver ETF inventory was not reported but it is close to the 264.5 million oz maximum inventory level that JPMorgan is allowed to hold.
 
In the silver comex, the open interest that remains for the first day delivery today rests at 9039 or  about 46 million oz of silver.  There is also 2.5 million oz of silver from the Feb options exercised which must be included.  We will also have about 10 millionoz of options exercised for March.  There will be some liquidation tomorrow but my guess is that we will have anywhere from 40-50 million oz of silver standing which would be a record.
 
***
This came across the wires just now:
 
Japan's factory production plunges by 10% as exports crash.  Here is Bloomberg;s headline of which you can read the report for yourself:
 
Japan Recession Deepens as Factory Output Plunges by Record 10%
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By Jason Clenfield and Toru Fujioka

Feb. 27 (Bloomberg) -- Japan headed for its worst postwar recession in January as manufacturers cut production by an unprecedented 10 percent and consumers slashed spending.

The month-on-month decline in factory output exceeded December’s record decline of 9.8 percent, the Trade Ministry said today in Tokyo. Household spending fell 5.9 percent from a year earlier, the biggest drop in more than two years.

 
 
Japan Job Vacancies Worsen at Fastest Pace Since 1992 (Update1)
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By Toru Fujioka

Feb. 27 (Bloomberg) -- Japan’s job prospects worsened at the fastest pace in 17 years in January as the deepening recession prompted companies to cut production and fire workers.

The ratio of jobs available to each applicant tumbled to 0.67 from a revised 0.73 last month, the biggest drop since 1992, the Labor Ministry said today in Tokyo. The jobless rate fell to 4.1 percent from a revised 4.3 percent in December, a separate report from the statistics bureau showed.

 

This is all for today, I will speak to you on Saturday with a full report.

Harvey

 

Wednesday, February 25, 2009

Commentary... February 25.09

Good Evening Ladies and Gentlemen,
 
Gold was whacked down 4.10 to $965, while Silver held in there going down 8 cents to $13.91.  Further carnage was felt in the access market as Gold went as low as 946 and Silver to 13.60. The open interest on gold rose by 3500 contracts despite gold's rapid fall yesterday.  Silver remained relatively constant.
 
First lets go to the economic news for today:
 
Libor continues at 1.26% as banking arteries remained clogged.
 
The comex silver situation remains interesting.  The silver contract went off the board today as did options.  However the March contract is still allowed to trade.  The open interest for March totals 18300 contracts.  There are 2000 option contracts exercised waiting for a March silver contract.  So tonight we have 20300 contracts standig.  Judging from previous silver delivery months, my guess is that 6500 contracts will be removed tomorrow and another 3500 on Friday.  That would leave about 10,000 contracts or 50 milllion oz standing which would be huge.  We never know for sure but to me it sure looks like we will have a record delivery month.
 
Remember that in December, which was the last delivery month, we had over 32 million oz of silver being delivered upon.  They are still trying to deliver December to many.  There was an additional 10 million oz of silver in the off delivery months of Jan and Feb.  on options excercised.  If 50 million are "tendered" this may break the bank.
 
With respect to gold comex, estimated volume today was 160,000 contracts.  They always underestimate the total by a full 40% so in all probablity we traded at 220,000 contracts with 30,000 coming in the last half hour.  There certainly was a determined seller to match the huge volume of gold purchasers surfacing throughout the world.
 
The ECB yesterday announced a sale of 7 tonnes of gold for the week.  One other ECB bank announced that it was purchasing gold for coins.
That country was Germany.  It is strange that this country with 3400 tonnes of gold registered to its credit, needs to purchase on the open market and not use its own inventory for gold coinage.  As I said on many previous occasions, Germany has no gold on its soil, it has leased 1700 tonnes of gold through the leasing program and it has swapped 1700 tonnes with the Americans at West Point.  In other words, the Germans own the gold at West Point, and the US sold the German gold through the leasing program.  This swap occured in 1999.
 
I find it strange that with huge volume of trading activity in the gold Comex market, and with huge price volatility,  the GLD remained constant in gold inventory.  Normally when you see such huge price drops in Gold that you would expect operators of the ETF to rid themselves with gold inventory. Open interest in the GLD remains high as many think that this vehicle has physical gold behind it and they are bidding for this metal.
 
Gartman generally gets his information from cartel members.  He decided to add a third unit of gold today which must be considered to be very bullish:
 
The Gartman Letter while nervous about gold’s pull back, nevertheless bought a third gold "unit" this morning.
 
However, the big news of the day belongs to Barrick Gold.  These guys floated a news report suggesting that they were attempting to get a loan of 3 billlion usa dollars to retire 1/2 of their hedge position.  The decided to keep this story on the back-burners.
 
First the story and I will explain its significance:
 
 
This first  article was written by Barry Sergeant from South Africa, where he suggests it was time for Barrick to buy back all its hedge position. 
 
 
 
>Gold's biggest name in the spotlight

Is Barrick, the world's biggest gold miner by value and production, preparing for a bought deal of up to USD 3bn?

Author: By Barry Sergeant
Posted: Wednesday , 25 Feb 2009

JOHANNESBURG -

Barrick, the world's biggest gold miner, by value and production, appears to be under increasing pressure to replenish its capital base, following last week's results announcement that guided for lower production and higher costs during 2009. Barrick pointed out that as of 31 December 2008, it held the gold industry's highest credit rating, a cash balance of USD 1.4bn, a USD 1.5bn undrawn credit facility and net debt of USD2.9bn, and scheduled repayments of less than USD 300m over the next four years.

Barrick currently ranks among the world's top five miners of all kinds, measured by market value. Its current market capitalisation, at USD 30bn, has more than doubled from low points less than six months ago. A number of specialist analysts have, however, again pointed out that while Barrick is apparently headed for growth in free cash flow, it also faces an ongoing hedge book handicap.

Analysts at RBC Capital Markets see free cash flow growing to USD 1.1bn in 2010, from USD 0.6bn in 2009. New mine development is expected to be supported by a strong balance sheet, say the analysts, with an estimated USD 1.7bn in cash at 2009 year-end, a USD 1.5bn un-drawn line of credit, and debt to total capitalisation of 20%.

"However", state Stephen D Walker and Valerie Blume at RBC Capital Markets, "the company continues to be handicapped by a hedge book that has seen the current realized value of the 9.5m ounces hedged decline from USD 374/oz to USD 364/oz in the past quarter. At a USD 1,000/oz gold price, the mark-to-market of the book is negative USD 6.0bn and changes by USD 0.95bn for every USD 100/oz move in the gold price. While the company has the flexibility to defer delivery until future years, in the current low interest rate environment, the realized value will not increase significantly over the next few years"…

-END-

 
Late in the day, Barrick floated its 3 billion bank loan to buy back 1/2 of its 6 million oz gold forward gold loan.  Here is the key passage today:
 
 

Barrick floated the prospect of a bought deal financing for $3 billion today. Some of the proceeds look to be going to close down some part of the 9 million ozs of gold they have hedged. This should ahve been front page news huh? The fed recovering a whack of its deep storage gold. I mean the fed is barricks ultimate counterparty isn’t it? Who else would set up a contract that would allow barrick to keep extending hedge closure date indefinitely…. so why would the fed be wanting some of its deep storage gold returned… to anchor the new monetary system the G 20 is in the process of formulating right now. The days of competitive currency devaluations must end so the world economy can stabilize and restore the condition where economic growth becomes possible… what better way is there then using gold as some kind of anchor for the new currency order that must be created. hence the feds recall of their deep storage gold… Munk could have bought it back at prices closer to $700 an oz not too long ago. Instead he’s looking at a $6 billion close out fee… Say removing even half of the barrick hedged gold from the market would dramatically impact the gold demand and perhaps gold pricing too huh? so why did barrick float the trial balloon on closing down some part or all of its hedge book today… They rode right into the market on the tails of the gold price hit didn’t they? Now the gold community has been inoculated in regard to a barrick closure a lot of the stupid element of the gold bulls will not join the charge when barrick officially makes its move huh? Yup I’m guessing barrick will call for delivery on a heaping whack of gold futures that are already in place.

***

Why is this significant? We are always watching barrick and whatever they do you should do.  These guys have now decided for the first time in 5 years to cover their hedges.

My guess is that 1/2 will be removed with the 3 billion dollar loan and the remainder will be financed out of earnings.  It is obvious that the Federal Government is getting a little antsy that Pasqua Lama will not get their permits.  If you remember from my previous commentaries,  Barrick needs to remove a glacier and that would disturb the ecological setting in Chile.  So far, both Argentina and Chile have refused to grant licenses to Barrick.  The Pasqua Lama project borders on both countries.  Barrick was expecting the reserves on this deposit to cover their gold short position.  In orther words, the deep storage gold listed at the Fed's website is in reality the Pasqua Lama deposit.  All the gold on deposit at Fort Knox and the Federal Bank of New York has been liquidated.  The government is very nervous about its getting its gold back and it could not wait any longer.  Ladies and Gentlemen  this is huge news!

And now for more economic:

 

The Dow closed lower today by 80 points as many were very disappointed at Obama's pep talk, i.e. there was no substance to the speech!.

Today, we got existing home sales and they were really disappointing.  Many thought we might get an uptick because of the huge fall in home prices.  They were wrong..sales continued to fall:

 

10:00 Jan Existing Home Sales 4.49M vs. consensus 4.79M
Dec figure unrevised from 4.74M.
* * * * *

U.S. existing home sales fell 5.3 pct in January

WASHINGTON, Feb 25 (Reuters) - The pace of sales of existing home in the United States fell in January to a 4.49 million-unit annual rate while home prices and inventories dropped, the National Association of Realtors said on Wednesday.

Economists polled by Reuters were expecting home resales to rise to a 4.79 million-unit pace, from the 4.74 million rate initially reported for December, which was unchanged.

The inventory of existing homes for sale fell 2.7 percent to 3.60 million from the 3.70 million overstock reported in December.

The median national home price declined 14.8 percent from a year ago to $170,300 - the lowest since a $169,400 level seen in March 2003.

 

Today we also got mortgage applications and they too suffered a big downdraft:

 

07:12 MBA mortgage purchase applications index (2.6%) in 20 -Feb week; total market index (15.1%)
Compares to +9.1% and +45.7%, respectively, in prior week. The refi index was (19.1%) vs. +64.3% in the prior week. The 30-year fixed rate +8bp to 5.07%; 15-yr. fixed rate +5bp to 4.71%.
* * * * *

 

This next news story was expected as it was announced a few weeks ago.  Merrill Lynch reported a huge 15.84 billion dollars loss for the quarter.

Ken Lewis , in a press conference, brought the house down when he reported that Merrill Lynch and Countrywide are the "stars" of Bank of America during the first quarter of 2009. Everyone in the room was in utter shock at this revelation.  They were in total disbelief especially when the new housing results came out!!.

Lewis Says Merrill, Countrywide Are ‘Stars’ This Year (Update2)

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By Margaret Popper and David Mildenberg

Feb. 25 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth Lewis said Merrill Lynch & Co. and Countrywide Financial Corp., the acquisitions that some analysts say helped push down the bank’s share price, have been “stars” so far this year.

Lewis, speaking today in a Bloomberg Television interview from his Charlotte, North Carolina, headquarters, said Merrill will be “a thing of beauty” over the long term. Merrill, the New York-based securities firm, lost $15.8 billion in the fourth quarter.

The 61-year-old banker’s views on the acquisitions counter criticism from analysts such as Paul Miller of Friedman Billings Ramsey Group, who contend the bank overpaid when it agreed in September to acquire Merrill and took on excessive risk as it acquired Countrywide, formerly the largest U.S. home lender.

“I almost fell off my chair” after hearing Lewis’s comments, Michael Holland, who oversees $4 billion as chairman and founder of Holland & Co. in New York, told Bloomberg TV.

Five months after he agreed to buy Merrill and cap a four- decade career at the nation’s largest bank, Lewis is under pressure from investors and Congress to bolster his share price and increase lending. Lewis, the CEO since 2001, said in internal memos and a letter to clients in recent days that Bank of America, the recipient of $45 billion in government aid, doesn’t need further help.

Everything ‘Playing Out’

Bank of America, down as much as 11 percent earlier today, rose 9.1 percent to $5.16 at 4:01 p.m. in New York Stock Exchange trading. The shares have declined 63 percent this year.

“Everything we thought is playing out” with the Merrill purchase, Lewis said. Industry statistics show the company is gaining market share against Wall Street rivals, he said.

“Countrywide is ripping right now because we’ve got a refinance boom going on,” said Anton Schutz, president of Mendon Capital Advisors Corp., a Rochester, New York investment firm that holds Bank of America shares. “And for Merrill, there’s a pretty good fixed-income market right now.”

The U.S. government’s plan to use “stress tests” to review balance sheets of the 19 biggest banks won’t pose a problem, Lewis said. The test is “a stress test on top of a stress test,” he said in the interview.

Tangible Common Equity

The bank expects to boost its ratio of tangible common equity to assets to 3 percent by the end of 2009 by reducing assets or selling some business units that don’t fit its strategy, Lewis said. The ratio was 2.68 percent at the end of last year.

Lewis said Bank of America expects revenue to top $100 billion this year, with Merrill and Countrywide poised to become key profit contributors. Merrill had annual operating profit of $3.7 billion to $7.8 billion between 2001 and 2006, while Countrywide had profit of $3.6 billion to $4.3 billion between 2003 and 2006 as the housing market soared. Bank of America is cutting more than $7 billion in annual expenses from the mergers, further boosting profit, Lewis said.

Bank of America lost $1.79 billion in the fourth quarter, excluding the Merrill losses. The bank cut its quarterly dividend to 1 cent from 32 cents on Jan. 16 to preserve capital. Its stock traded at $33.74 before the Merrill deal was announced on Sept. 15.

Backed by Ex-CEOs

Two former Bank of America CEOs today praised Lewis’s decision to buy Countrywide last year and said the government forced the bank to purchase Merrill. Countrywide positions the bank “to take advantage of one of the few bright spots in the entire industry right now: the surging market for mortgage financing,” Hugh McColl Jr. and Thomas Storrs said in the Charlotte Observer.

Lewis faces legal pressures. New York Attorney General Andrew Cuomo is investigating Merrill’s $3.6 billion bonus payments to employees in December, just before merger was completed. Lewis declined in today’s interview to comment specifically on Cuomo’s investigation, saying he expects to speak with the attorney general.

Lewis and the bank’s directors were also accused in a Jan. 21 lawsuit filed by Jerry Finger, a Houston banker who owns 1.5 million shares, of failing to disclose losses at Merrill before the deal closed on Jan. 1. Finger sold his Houston-based Charter Bank to McColl in 1996.

Between April 2001 and November 2006, Bank of America’s shares doubled as Lewis expanded the bank with acquisitions, paying $48 billion for regional lender FleetBoston Financial Corp. and $34 billion for credit-card issuer MBNA Corp.


 

To contact the reporter on this story: David Mildenberg in Charlotte at  dmildenberg@bloomberg.net   

Last Updated: February 25, 2009 16:32 EST

It now costs 1% per year to buy insurance on usa bonds that yield 1.92%.  So if you want to safeguard your money you are getting .92% per year for 10 years.  Not a very good rate of return.  Here is the story:

 

Cost of insuring U.S. 5 yr. Treasury bond is now 1%

If an institution buys a 5-yr Treasury and then wants to turn around buy credit default protection on its purchase, it now must pay 1%. The yield on a 5 yr. T-bond is 1.92%. It now costs more than 50% of your rate of return on a T-bond to insure that you get your money back. This is an absolute disaster for our Government. The cost of credit default insurance is a real world, market assessment of the risk of default of the U.S. Govt, as opposed to the fantasy/fraudulent ratings issued by Moodys and S&P. As per this article, the default risk of the U.S. Govt is now considered to be higher than that of Japan, Germany and France. I would also argue that, given the risks being priced into our credit markets, including the Govt bond market, that the level of the Dow/S&P 500 is still way too high:

http://zerohedge.blogspot.com/2009/02/santelli-all-over-us-annihilation-risk.html

 

Total federal debt went up another 5 billion dollars today: The new total is 10.843 trillion dollars.

10,843,355,058,860.91

Today, Gary Gensler went before the senate for confirmation hearings.  He is set to be the new chairman of the CFTC. We will hand our documents to him once he is sworn in.

I wrote to the Commissioner Bart Chilton concerning the SLV inventory reaching its maximium. He is looking into the matter for me.

Anyway, that is all for today,

Have a great day

Harvey

 

 

 
 
 
 
 
 
 
 

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