Saturday, March 7, 2009

March 7.09 commentary.

 
Good morning Ladies and Gentlemen:
 
Gold closed up by 15.10 to $942.10 in regular comex trading hours.  Silver rose on a smaller percentage basis up by 21 cents to 13.32.
 
The open interest on the gold comex rose by 3000 on Thursday's rise suggesting that speculators could not wait any longer.  Silver's Oi fell by a few contracts despite silver's rise.  However the OI level is at a relatively low 92000 OI.
 
We have our "stalker" who reports when he purchases gold.  He reported to us yesterday that he bought big at 906.00. He now expects gold to rise to above 1000 and he will then reassess his position.
 
For the umpteenth time, Dennis Gartman lost all of his gold contracts on gold's pulldown this past week.
This guy is one complete moron.
 
As for economic news, the big news of course is the jobs reports.  For February, the total loss was 651000 jobs instead of the projected 620,000,  On top of that a further 180,000 jobs were lost in January and December. The total unemployment rate jumped to 8.1%.  Here is the report:
 
08:30 Feb non farm payrolls reported (651K) vs. consensus (650K); unemployment rate 8.1% vs. consensus 7.9% 
* * * * *

08:30 Jan non-farm payrolls revised to (655K) from (598K) 
* * * * *

08:31 Follow-up: Dec non-farm payrolls revised to (681K) from (577K) 
* * * * *

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

US Feb payrolls fall 651,000; jobless rate 8.1 pct 

WASHINGTON, March 6 (Reuters) - U.S. employers axed 651,000 jobs in February, pushing the unemployment rate to its highest in 25 years, as companies buckled under the strain of a recession that is showing no signs of ending, according to a government report. 

While that figure was near economists' expectations for a 648,000 drop in non-farm payrolls, January and December job losses were revised sharply higher. 

The Labor Department on Friday said the unemployment rate surged to 8.1 percent in February, the highest level since December 1983. That was above market forecasts for a rise to 7.9 from January's 7.6 percent. 

January's job cuts were revised to show a steep decline of 655,000, while December's payrolls losses were adjusted to 681,000, the deepest since October 1949. Since the start of the recession in December 2007, the economy has purged 4.4 million jobs, with more than half occurring in the last 4 months. 

Job losses in February were broad based, with only government, education and health services adding jobs. 

"Since the recession began, the rise in unemployment has been concentrated among people who lost jobs, as opposed to job leavers or people joining the labor force," said Bureau of Labor Statistics Commissioner Keith Hall 

The manufacturing sector shed 168,000 jobs in February, after eliminating 257,000 positions the prior month. Construction industries bled 104,000 jobs in February after losing 118,000 in January. The service-providing industry slashed 375,000 positions after shedding 276,000 in January.

-END-

In the King report, Bill King dissects the numbers.  Again, these bureaucrats created 134000 jobs with a phony B/D plug.  This figure estimates that when you lose your job (death) you start a new business (birth).  They try and estimate this number in job creation. It is totally without merit.

Here is where they added the jobs in the phony B/D plug:

>Manufacturing:* 6,000
*>Trade, Transportation & Utilities:* 10,000
*>Information:* 7,000
*>Financial Activities:* 8,000
*>Professional & Business Services:* 36,000
*>Leisure & Hospitality:* 35,000
*>Education & Health Services:* 17,000
Mike - The Republic of Texas!

 

John Williams in his Shadow government Statistics  estimates that total unemployment is now 19.1% up from last month 18%.  Williams adds workers who are trying to find jobs but cannot as they become discouraged and do not look any more.  The government does not treat these people as unemployed.  Go figure!!

It looks more likely now that GM will have to declare bankruptcy: This came at 2: oclock yesterday:

02:01 GM General Motors executives becoming more open to bankruptcy - WSJ (1.86)
A person familiar with the matter says the company now feels it could emerge from a speedy reorganization financed by the government, and no longer worried the move would scare too many customers away. A prepackaged bankruptcy, in which unions, suppliers, and bondholders agree to concessions in advance, should take only a few months, though executives are concerned a behemoth like GM could take substantially longer than 90 days to emerge. Sources say GM's bankruptcy advisers have been trying to figure out how to reduce the negative effect bankruptcy would thrust on the company's public image. A personal familiar with bondholders' thinking says a greater chance of bankruptcy might move them to make more concessions in their debt-for-equity discussions. A company spokesman still toes the line, saying GM does not want to contemplate bankruptcy.
Reference Link (subscription required) 

Now we are hearing from the auto dealers and the trouble they are facing. They are asking Obama for some bailout money. Here is Bloomberg's report:

Auto Dealers Plead for U.S. Help as Hundreds May Fail in 2009 

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By Jeff Green and John Hughes

March 7 (Bloomberg) -- The National Automobile Dealers Association appealed to President Barack Obama’s car industry task force for help in cutting financing costs for retailers.

The 90-minute discussion with U.S. Treasury auto advisers Steven Rattner andRonald Bloom didn’t elicit any commitment for aid, NADA Chairman John McEleney said yesterday in an interview. The 19,700-member association expects 1,200 U.S. dealers to close this year, he said.

“We certainly did not receive a commitment and nor did we expect to,” McEleney said. “We had a very helpful discussion. We spent about one-third of our time discussing that topic.”

Treasury Secretary Timothy Geithner and National Economic Council DirectorLawrence Summers held talks yesterday at the White House to discuss the restructuring of U.S. automakers. U.S. auto sales in February slid to the lowest rate since December 1981, led by a 53 percent plunge for GM as the recession deterred buyers and demand fell for the 16th straight month.

The group convened “cabinet-level members of the Presidential Task Force on the Auto Industry to discuss the status of restructuring plans from Chrysler LLC and General Motors Corp.,” the Treasury said in an e-mailed statement.

Owners of dealerships this week criticized the $1 trillion Term Asset-Backed Securities Loan Facility for failing to meet their most pressing need: financing to buy cars from automakers. Car sellers are complaining they don’t qualify under the program that covers only AAA-rated debt.

Auto dealers use loans from finance companies to buy cars and trucks from manufacturers. Ratings companies have ranked loans to dealers below AAA, meaning the debt can’t be bought by investors with funds from the program.

Tight Financing

Car dealers of small-to-medium size need financing to support their inventory, which is typically $5 million in vehicles, the NADA chairman said.

“Our floor traffic is off 40 percent, but our business is off 60 percent to 70 percent because people can’t get financing,” said Gordon Stewart, a Detroit-based Chevrolet dealer for 29 years. “I’ve never seen anything like this. I’ve been calling it a depression since last January and it’s only gotten worse.”

GM, seeking to keep $13.4 billion in U.S. Treasury loans and gain as much as $16.6 million more, said it needs to reduce its dealer ranks to 4,100 in 2014 from 6,246 last year. Chrysler, seeking $5 billion in addition to $4 billion already granted, said only 48 percent of buyers were approved for car loans in January.

Record Closures

U.S. auto sales fell to 13.2 million last year, a 16-year low, and slowed further in the first two months of this year. U.S. auto dealerships closed in record numbers in 2008, with the pace accelerating in the last quarter of the year as the economy collapsed.

Chrysler, which hasn’t said how many of its dealers will have to close, said in a Feb. 17 report to the U.S. Treasury that 27 percent of its retailers were “weak” as of December and 74 closed from September to December.

Shutdowns totaled 881 last year, with most coming in the fourth quarter, according to a study released Feb. 19 by Detroit- based consultant Urban Science. That was the biggest decline since recordkeeping began in 1991, the firm said.

Domestic automakers accounted for 80 percent of the car- dealer closings, Urban Science said. It counted 20,084 U.S. dealers at year end.

‘It’s Really Bad’

 

Late in the day we heard from an ECB central banker, that the ECB may have to cut interest rates to zero. The Italian member of the ECB  Smaghi  commented:

04:45 ECB's Smaghi says should be ready to cut rates toward zero if needed, but adds zero rates can lead to substantial problems -- Reuters
Smaghi says that interest rates should be cut at a pace necessary to ensure price stability in the medium term. He adds that the easing phase should end when upward risks to inflation become dominant again as he believes it is not sound to always err on the side of excessive easing. - SA London   end

The big news of the day belongs to the trading of JPMorgan and Goldman Sachs.

With stock markets up in the early hours of the stock market, both JPMorgan and Goldman Sachs swooned.   When the Dow did their famous HAIL MARY  finish in the last 1 hr to cause the dow to go from negative 150 to a positive 32, both JPMorgan and  Goldman Sachs did not participate.  Here are some closing numbers;

THE RACE FOR ZERO…

*JPM fell 67 cents to $15.93, after breaking $15 on the downside.
*Goldman Sachs dropped a hefty $6.07 to $75.65, with a low of $73.25. While the PPT gunned the DOW, traders shied away from GS, giving more fodder to the notion they are in trouble. *GM is truly disappearing. It sank another 41 cents to $1.45. 
*Citigroup (C) held above $1 at $1.03.
*Bank of America (BAC) traded as lows $3 before finishing the day at $3.14, off 3 cents.
*AIG managed to hold the lead in the race to zero, finishing the week at 35 cents, unchanged on the day.

 

Please note that JPMorgan fell to 15.00$ at one point.  It closed down .67 cents to 15.93.  Goldman Sachs fell 6.07 to 75.65. The street is getting very nervous of hidden derivative losses at both of these entities.

 

Late Friday night:  this came over Bloomberg and it portends hugh losses on Monday;  Lloyds is being taken over by the Government to the tune of 75% ownership:

 

Lloyds Cedes Control to Government, Insures Assets (Update2) 

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By Andrew MacAskill and Jon Menon

March 7 (Bloomberg) -- Lloyds Banking Group Plc, Britain’s biggest mortgage lender, will cede control to Prime Minister Gordon Brown’s government in return for state guarantees covering 260 billion pounds ($367 billion) of risky assets.

The government’s stake will rise to as much as 75 percent, making Lloyds the fourth U.K. bank to slip into state control since the run on Northern Rock Plc in September 2007. Brown is using that leverage to force banks to increaselending to homeowners and businesses and spur an economy that is facing its worst recession since World War II.

“In order to get British banks lending again the government needed to take them over,” said Simon Willis, an analyst at NCB Stockbrokers Ltd. in London, who has a “sell” rating on Lloyds stock. “It is likely to be at least three of four years before the banks return to the private sector.”

Lloyds will pay more for asset protection than Royal Bank of Scotland Plc, the first lender to enter the program, because of the deteriorating quality of loans acquired when it bought HBOS Plc in a government-brokered deal. London-based Lloyds will pay 15.6 billion pounds, or 5.2 percent of the insured assets, in the form of non-voting shares, the bank said in a statement. RBS last month paid 2 percent.

About 83 percent of the assets Lloyds is insuring came from HBOS, the bank said.

‘Rubbish Bank’

The HBOS loan book “is more toxic than anyone ever dreamed,” said Alan Beaney, who helps manage $2 billion, including Lloyds stock, at Principal Investment Management in Sevenoaks, England. “As a Lloyds shareholder you are very annoyed because you had a bank that did not need the government very much and now you have inherited a rubbish bank.”

In September, Lloyds agreed to buy HBOS for about 7.7 billion pounds as the government sought to prevent HBOS from collapsing after credit markets froze.

Last month, HBOS posted a pretax loss of 7.5 billion pounds, bigger than Lloyds anticipated at the time of the takeover, and Chief Executive Officer Eric Daniels said he would have liked more time to examine HBOS’s accounts before the purchase. Lloyds wouldn’t have needed taxpayers’ money if it hadn’t made the acquisition, he said.

Some shareholders are pressuring Daniels to resign because of the HBOS deal, Beaney said. Daniels, who joined Lloyds in 2001, will receive a 3 million-pound pension, the London-based Times reported today, without saying where it got the information. The 58-year-old CEO will be entitled to payments of 150,000 pounds a year when he turns 60, the newspaper said.

Deepening Recession

Before today, the government had invested 17 billion pounds in Lloyds and HBOS, giving the Treasury a 43 percent stake when the banks combined. In January, Lloyds said it would resist any attempt to increase state ownership.

That position changed as the economy worsened, spokesman Shane O’Riordain said in an interview today.

“Banks across the world are facing unprecedented market conditions right now,” he said. “Our first objective is ensure that we have a very strong balance sheet given the downturn.” end

 

Bloomberg also reported that French bank BNParibas has bought from the country Belgium ownership of Forits with guarantees to the French bank of any losses:

BNP Paribas to Buy 75% of Fortis Bank With Belgian Guarantees 

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By John Martens and Fred Pals

March 7 (Bloomberg) -- BNP Paribas SA, France’s biggest bank, agreed to acquire Fortis’s former banking units in Belgium and Luxembourg and take a stake in the insurance business after obtaining state guarantees on potential losses.

BNP Paribas will buy 75 percent of state-owned Fortis Bank NV and gain control of the Luxembourg banking unit for 2.88 billion euros ($3.64 billion) in stock, the Belgian government said today in a statement. Fortis Bank will then pay 1.38 billion euros in cash for 25 percent of Fortis Insurance Belgium SA.

The French bank will become the biggest by deposits in Belgium and Luxembourg, two of Europe’s wealthiest nations, if it wins over Fortis investors. Belgium is seeking to sell the Fortis banking operations after the September collapse of Lehman Brothers Holdings Inc. and the freezing of credit markets triggered state bailouts of Fortis and Dexia SA.

“Given the situation, this is probably as good as it gets,” Albert Ploegh, an analyst at ING Wholesale Banking in Amsterdam, said today by telephone. “I don’t think there’s a much better deal to be expected.”

Under the new agreement, the Belgian government will provide 740 million euros of equity funding to a company created to split off 11.4 billion euros ofrisky assets into a separate entity. BNP Paribas will contribute 200 million euros to the risky-asset entity and Fortis will provide 760 million euros.

Fortis Bank will contribute the remaining 9.7 billion euros in debt funding, backed by a 4.36 billion-euro guarantee from Belgium. The structured-credit investments have been marked down to about 58 percent of par value, Belgian central bank Deputy Governor Luc Coene told reporters in Brussels.

State Guarantee

BNP Paribas also obtained a 1.5 billion-euro state guarantee on losses exceeding 3.5 billion euros on the structured-credit holdings that remain within Fortis Bank. Once Belgium’s largest financial-services company, Fortis will emerge from the state- organized breakup as an insurer with the right to potential gains on Belgium’s stake in BNP Paribas.

“This solution guarantees the bank’s safety and future,” BNP Paribas Chief Executive Officer Baudouin Prot told reporters in Brussels. “And I think this is very important for the Belgian economy at a time when its banking industry is going through a difficult period.”

Fortis shareholders blocked an earlier agreement to sell units to BNP Paribas on Feb. 11. Mischael Modrikamen, a lawyer representing about 2,000 Fortis investors who won a Dec. 12 court injunction on the previous deal pending the shareholder vote, said there isn’t “any objective reason to call on shareholders to vote ‘yes’ on this” new agreement. end

 

It is Saturday and we now get our weekly bank failure.  Today, it is Freedom bank of Commerce, Georgia being taken over by the FDIC.  Here is todays press release:

 

Freedom Bank of Georgia Seized, 17th U.S. Failure This Year 

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By Margaret Chadbourn and Ari Levy

March 7 (Bloomberg) -- Freedom Bank of Georgia was seized by regulators, the 17th bank closed this year, as the recession persists and a jump in unemployment pushed more borrowers behind on home loan payments.

Freedom Bank, in Commerce, Georgia, with $173 million in assets and $161 million in deposits, was shut by the state’s Department of Banking and Finance and the Federal Deposit Insurance Corp. was named receiver. Northeast Georgia Bank of Lavonia, Georgia, will assume deposits, the FDIC said.

“Customers of both banks should continue to use their existing branches until Northeast Georgia Bank can fully integrate the deposit records of Freedom Bank of Georgia,” the FDIC said.

The U.S. economy is in the second year of a recession caused partly by a collapse of the housing market and losses in the financial system linked to mortgage securities. The U.S. unemployment rate reached 8.1 percent, the highest level in more than a quarter century, and employers shed 650,000 jobs last month, the Labor Department said.

Closely held Northeast Georgia Bank will buy about $167 million in assets at a discount of $13.7 million and the bank agreed to share with the FDIC in any losses on about $96.5 million in assets. The FDIC estimates the transaction will cost the deposit insurance fund, supported by fees on insured banks, about $36.2 million.

Bank Losses

FDIC-insured banks lost $26.2 billion in the fourth quarter, the first loss for a three-month period since 1990. U.S. banks and other financial companies have reported about $800 billion in writedowns and credit losses since 2007 in the worst financial crisis since the Great Depression.

“There is no question that this is one of the most difficult periods we have encountered during the FDIC’s 75 years of operation,” FDIC Chairman Sheila Bair said at a news conference on Feb. 26 after the industry report was released.

The FDIC predicted that bank failures will cost the fund $65 billion through 2013, up from the $40 billion estimated in October. The fund, drained by 25 bank shutdowns last year, dropped 45 percent to $18.9 billion in the fourth quarter from $34.6 billion in the preceding three-month period.

The Washington-based agency classified 252 banks as “problem” in the fourth quarter, a 47 percent jump from the third quarter. It doesn’t name the “problem” banks.

‘Not in Favor’

“Compared to the previous deal, there is absolutely nothing favorable for shareholders” of Fortis, Modrikamen told Belgian broadcaster RTBF today. The new arrangement includes “some elements” of the earlier plan, “but they have been adapted for the benefit of BNP Paribas and not in favor of Fortis Bank.”

Fortis’s largest shareholder, Chinese insurer Ping An Insurance (Group) Co., is “studying the situation,” L’Echo newspaper reported, citing a Ping An lawyer it didn’t identify.

Fortis Chairman Jozef De Mey said executives “feel relatively comfortable that we will get a positive vote” from shareholders on the new agreement. “We can definitely show that compared to the deal presented to shareholders in February, this one is better,” De Mey said on a conference call today. Meetings may be scheduled on April 8 in Brussels and the following day in the Dutch city of Utrecht, he told reporters.  END

Early Friday morning, Wells Fargo cut their dividend by 85% to 5 cents to save 5 billion dollars.  They are racking up losses on its home loans.  In Canada they are what we call second mortgages.

In conclusion, the debt spiral facing the usa and the globe has been immense.  Credit has been non existent as seen by Libor and the contraction of commercial paper.

 

However Governments continue to print money as foreign governments refuse to buy our paper. This can only lead to an hpyerinflationary depression.  Have we ever experienced anything like this in our history?  No.  Is there anything like this anywhere?  yes, Zimbabwe.

 

Have a great day and weekend

 

Harvey.

 

Thursday, March 5, 2009

March 05.09 commentary

www.lemetropolecafe.com <blocked::blocked::http://www.lemetropolecafe.com/>

Good evening Ladies and Gentlemen:

Today gold closed up by 21.00 to 927.00 Silver rode on gold's back climbing by 23 cents to 13.11. In gold comex, the OI went up by 957 contracts to 366220,  This happened as gold was whacked  yesterday for the 5th straight day.  Obviously there was no liquidation on the gold contract.  With respect to silver, the Oi dropped again by a scant 400 contracts to an extremely low 92000.

Today, the stock market plummeted with the financials leading the cavalry charge in reverse.  Here are some closing numbers on the financials.  The Dow by the way closed down by 282 points.:


*JP Morgan Chase (JPM) divebombed $2.70 to $16.60, a new low by a wide margin.
*AIG lost 8 cents and is worth the stupendous amount of 35 cents per share.
*Citigroup (C) is impressive at $1.02, down 11 cents.
*Wells Fargo (WF) is going the way of the stagecoach. It fell $1.59 to $10.55.
*GE is not exactly lighting up the ball park. It lost 3 cents to an ominous $6.66 per share. The Muppet hosts at CNBC are starting to look over their shoulders.
*Let's hear it for CEO Ken Lewis. Bank of America fell another 42 cents to $3.17. Yuck.
*GM sank 34 cents to $1.86. What was the ole saying about as GM goes, so goes America? Uh Oh.

I would like to add, that all the money needed today went to rescue the bonds at they rose by a full 3 points.  The cartel saw the danger to JPMorgan with all their interest rate swaps, and so all available dollars went to this arena leaving gold on its own and of course, the stock market plummeted on the avalanche of sell orders.

I would like to add that Citigroup at 3 o'clock broke the magical $1.00 barrier trading at 99 pennies.  It closed at 1.02 up a full 3% from its lows.

The big news was the miserable performance from JPMorgan and Bank of America.
I guess the street does not believe Ken Lewis at all.  And they believe there are deep secrets behind JPMorgan.

As I commented to you on many occasions, JPM has over 120 trillion of interest rate swaps and they must have interest rates remain low.  A huge volatility in the rise in yields  (lower in price) sends the deriviatives into a tailspin and causes JPMorgan to pony up huge amounts of dollars as collateral.  We believe that much of the TARP money went to two sources;

1. Genereal Electric
2. JPMorgan

This really bugs me:  the Feds have decided to fight Bloomberg even though they lost the identical case to Fox News.  We are under the opinion that they are going to redact all the participants of the TARP fund.
The problem here is that the public is getting very angry.  Anyway, here is the article:

Fed Refuses to Release Bank Lending Data, Insists on Secrecy

March 5 (Bloomberg) -- The Federal Reserve Board of Governors receives daily reports on loans to banks and securities firms, the institution said in response to a Freedom of Information Act lawsuit filed by Bloomberg News.

The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast "a stigma" on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.

The bank provides "select members and staff of the Board of Governors with daily and weekly reports" on Primary Dealer Credit Facility borrowing, said Susan E. McLaughlin, a senior vice president in the markets group of the Federal Reserve Bank of New York in a deposition for the Fed. The documents "include the names of the primary dealers that have borrowed from the PDCF, individual loan amounts, composition of securities pledged and rates for specific loans."

The Board of Governors contends that it’s separate from its member banks, including the Federal Reserve Bank of New York which runs the lending programs. Most documents relevant to the Bloomberg suit are at the Federal Reserve Bank of New York, which the Fed contends isn’t subject to FOIA law. The Board of Governors has 231 pages of documents, which it is denying access to under an exemption under trade secrets.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aG0_2ZIA96TI <blocked::blocked::http://www.bloomberg.com/apps/news?pid=20601087&sid=aG0_2ZIA96TI> -END-

It is obvious that the Fed is hiding some pretty serious stuff.  As far as silver is concerned, my bet is that Fed money has been received as collateral to knock out investors.

And these clowns continue to act against the interests of the public.  They should be all go to jail for their fraud.



This is absolutely huge:  Blackstone has written its Leveraged Buy Out Debt to zero.  Here is the article:

Yet another time-bomb that is detonating

Blackstone has written down to zero the value of billions of dollars of LBO debt that it bought from Deutsche Bank last year:

"Blackstone bought the debt in April and marked down the value by year-end. The buy-out group disclosed the markdown in a Tuesday conference call with investors. The debt involved in the Deutsche deal was both senior debt and lower quality debt." - FT.comhttp://www.bloomberg.com/apps/news?
pid=20601087&sid=aQCkBDCH2Hac&refer=home <blocked::blocked::
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQCkBDCH2Hac&refer=home> .



So let me get this straight.. Blackstone writes down its billions of dollars in LBO debt to zero but the banks are keeping their assets at 100 cents on the dollar.  And the world sits idly buy and watches this soap opera in total disbelief!!



If Blackstone is valuing this stuff at zero then the banks should as well. The problem then of course, is that the banks go belly-up and our politicians do not want that to happen.

I am so glad our CEO's have full confidence in the economy.  The index just hit another low:

CEO Confidence Index Breaks Its Own Worst Record for the Third Time in the Past Four Months

Pessimism Continues to Snowball as CEOs Doubt the Effectiveness of the President's Economic Measures

NEW YORK, March 5 /PRNewswire/ -- It is now clear that, so far, the President's Stimulus Plan did little in way of bringing confidence to the markets. And, according to Chief Executive magazine's CEO Index, it also appears to have done little, if anything, in way of assuaging CEOs' fears about the direction of the economy.

In February, the Chief Executive magazine's CEO Confidence Index, a leading economic indicator of executive confidence, broke its own record for the third time in the past four months, reaching a new low.

Overall, CEOs were united in their concern about the economy, as a whopping 95 percent rated the current business and employment conditions as bad. This is the highest number of CEOs to indicate such pessimism in the current state of the economy since polling began in October of 2002.

Worse yet, CEOs do not see things getting any better any time soon, as 69 percent expect the economy and 77 percent expect unemployment to get worse over the next quarter. This is the second worst rating on future confidence in both of these areas since the polling began. The worst records were set in December 2008 for the future confidence economy and in November 2008 for future confidence in employment.

"These low levels of confidence are unprecedented," said J.P. Donlon, Editor-in-Chief of Chief Executive magazine. "Not only are CEOs strongly bearish, they do not expect a turnaround anytime soon."…

-END-

Today, they released expected earnings from the S and P for the next quarter. Even   though they use proforma and not real earnings, these expected earnings are to be down a full 58%:

17:33 S&P says downgrade potential hits all-time high
S&P said today that credit quality continued to deteriorate in February, with downgrades leading upgrades 49 to 6 in the first three weeks of the month. So far in Q1, downgrades are outpacing upgrades 14.3 to 1. According to S&P, if this trend continues, Q1 would be the worst quarter on record in terms of this ratio. The ratio was 8.9 to 1 in Q4 of 2008 and reached an all-time high of 14.1 to 1 in Q4 of 2001. Of interest, S&P pointed out that even sectors that held up relatively well in 2008 have begun to see an uptick in downgrades.

If memory serves me correct, the first quarter S and P 500 was on target for a 30.00 dollar earnings for the entire 500 companies.  It is now then projected to earn around 12.00  (and this does not include any stocks with negative earnings)

Thus if you take 10 x projected earnings of 12.00 you get an S and P of 120.00.  The S and P is around 685 today.  The stock market has a long way to go down!.

Whenever you see commentaries from the BIS you pay attention.  The BIS or the Bank of International Settlements is the bank for the central banks.  They clear deposits between central banks.  The also moniter  derivatives and the risk to the banking sector.  They report every May-June and November -December.

Please read carefully what they stated today:

20:18 BIS says European banks face $2 trillion funding gap - Telegraph
Citing a report by the Bank for International Settlements, the Telegraph says that European banks face a US dollar funding gap of almost $2 trillion. According to the BIS, the build-up of large net US dollar positions on the balance sheets of European and British banks has exposed them to funding risk, along with the risk the positions may not be able to be rolled over. The Telegraph notes that the report, entitled "US dollar shortage in global banking", helps explain why there has been such a mad scramble for dollars every time the credit crisis takes a turn for the worse.
Reference Link 
* * * * *

The BIS is reporting a massive shortfall in the European banks to the tune of 2 trillion dollars.  This was reported by the UKTelegraph this morning.

Speaking of Europe, today both the Bank of England and the ECB lowered rates.  Here are their press releases:

England:  lowered to 1/2 percent and then made a press release that they were going to buy bonds with printed paper.  Here is the story:

 

.March 5 (Bloomberg) -- Bank of England Governor Mervyn King will take the unprecedented step of printing money to buy assets after reducing the benchmark interest rate by a half point to almost zero...........

 

And the ECB lowered by 1/2 point to 1.5% even though their economy is in turmoil.  Many state that they are behind the curve:

07:45 ECB lowers benchmark interest rate by 50bp to 1.50%
The move was as expected - SA London .

 

Quantitative easing is the order of the day in all of Europe. No wonder Gold and silver rose big time today.

 

In other economic news, the world was greeted with this news story at 8:30, the jobless claims.  They were pretty bad but the results were as expected:

 

08:30 Jobless claims 639K vs. consensus 650K 
Prior week revised to 670K from 667K. Continuing claims for w/e 21-Feb 5.106M vs. consensus 5.155M. Prior week revised to 5.120M from 5.112M. 
* * * * *

New U.S. jobless claims eased last week 

WASHINGTON, March 5 (Reuters) - The number of U.S. workers filing new claims for jobless benefits fell more than expected last week, a government report showed on Thursday, but remained at high levels consistent with a severe recession. 

The Labor Department said initial claims for state unemployment insurance benefits fell by 31,000 to a seasonally adjusted 639,000 in the week ended Feb. 28 from an upwardly revised 670,000 the prior 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 641,750 in the week ended Feb. 28 from 639,750 the week before.

 

US productivity fell badly last month.  Government is always hoping for productivity gains.  Not this month:

 

US Q4 business productivity revised sharply down 

WASHINGTON, March 5 (Reuters) - U.S. non-farm productivity was much weaker than initially estimated in the fourth quarter as output contracted at its steepest pace since 1982, according to a government report on Thursday that underscored the deteriorating economic climate. 

The Labor Department said non-farm productivity fell at a revised 0.4 percent annual rate, sharply below initial estimates of a 3.2 percent advance published last month and 2.2 percent rise in the third quarter. 

Analysts polled by Reuters had forecast productivity increasing at a 1.5 percent rate. 

Output was revised to show a steep 8.7 percent decline in the fourth quarter, the sharpest decline since the first quarter of 1982. It was initially estimated as a 5.5 percent fall. 

For 2008, productivity rose 2.8 percent, unchanged from last month's estimate. 

Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, were revised up to a 5.7 percent increase in the fourth quarter, above Wall Street's estimates for a 3.4 percent increase. 

The number of hours worked dropped at an 8.3 percent annual rate during the fourth quarter, the biggest decline since the first quarter of 1975.

-END-

US factory orders fell badly in January as the economy contracted. This news was as expected:

U.S. factory orders fell 1.9 pct in January 

WASHINGTON, March 5 (Reuters) - New orders received by U.S. factories fell for a sixth straight month in January, official data showed on Thursday, further evidence the economy's downward spiral was gathering momentum. 

The Commerce Department said factory orders fell 1.9 percent in January from a revised 4.9 percent decline in December, previously reported as a 3.9 percent drop. 

Analysts polled by Reuters were expecting orders to drop 3.5 percent. The successive decline in orders is the longest streak since the series started in 1992, the department said. 

New orders for manufactured durable goods were revised to show a 4.5 percent drop, which was previously reported as a 5.2 percent decrease. 

An indicator of business confidence fell, as non-defense capital goods orders excluding aircraft slipped by 5.7 percent.

Inventories of manufactured goods eased 0.8 percent, the biggest drop since September 2003, when the stock of unsold goods fell by a similar margin, the department said. Inventories have been falling for five consecutive months, which is the longest streak of straight monthly declines since the period from March 2003 to January 2004.

-END-

 

This is the latest news on the housing front:

 

One in 8 U.S. households late paying or in foreclosure 

NEW YORK (Reuters) - One in every eight U.S. households, a record share, ended 2008 behind on their mortgage payments or in the foreclosure process as job losses intensified a housing crisis spawned by lax lending practices, the Mortgage Bankers Association said on Thursday. 

With unemployment at a 16-1/2-year high and rising, more borrowers will be late paying or fall into foreclosure this year, said the group's chief economist Jay Brinkmann. 

"While California, Florida, Nevada, Arizona and Michigan continue to dominate the delinquency numbers, some of the sharpest increases we saw last quarter in loans 90 days or more delinquent were in Louisiana, New York, Georgia, Texas and Mississippi, signs of the spreading impact of the recession," he said…

 

When you see commercial paper dry up you know that banks refuse to lend.  Libor is still 1.27% and then this news on commercial paper:

US commercial paper issuance drops sharply

NEW YORK, March 5 (Reuters) - U.S. commercial paper issuance declined rapidly in the latest week, suggesting the troubles plaguing credit markets are far from over. 

Total commercial paper outstanding fell $44.2 billion, to stand at $1.480 trillion. The market was only a shadow of its former self, having peaked around $2.2 trillion before the financial crisis began to take its toll. 

Unsecured financial issuance, which reflects the state of beleaguered banks, fell by $35.9 billion, the biggest drop since a record $93.5 billion five weeks ago. 

Still, the decline in commercial paper was not all bad news. Some said it reflected companies' increasing ability to borrow for longer periods via programs like that sponsored by the Federal Deposit Insurance Corp., or FDIC.

General Motors may fill for chapter ll as car sales are falling faster than a speeding bullet. They may not get a go ahead from their auditors on a go forward solvency issue.  It looks like they are toast:

06:07 GM General Motors files 10-K (2.20)
The company says there is substantial doubt about its ability as a going concern. GM reported last night it was delaying the filing and said that it anticipated receiving from its auditor an opinion expressing substantial doubt about its ability to continue as a going concern. Given the recent developments, the statement is not a surprise, yet is mentioned in the filing. 
* * * * *

And then this:

3rd UPDATE:GM Auditors Raise Doubt On Auto Maker's Viability

 

(Updates throughout with bondholder response, share price)

By Sharon Terlep

Of DOW JONES NEWSWIRES

General Motors Corp.'s (GM) auditors cast doubt Thursday on theDetroit auto maker's ability to survive without more U.S. government loans, in a foreboding assessment of the company's financial plight.

GM's continuing losses, negative net worth and an inability to generate cash for continued operations led the auditors to determine there was substantial doubt that the company can survive. GM warned last week it may not be able to able meet its auditors' "going concern" requirements.

END

The big news of the day however is Central Fund of Canada.  It's stock closed at 58.50 CDN for a full 6.50 gain.  The volume of immense.  The premium to NAV is at a record 31%.  This is totally unbelievable.  It seems that many are now realizing that GLD and SLV are frauds and the only place to get physical is the Central Fund of Canada.  The ticker is GTU.un for gold and CEF.a.un for gold/and silver i equal amounts. The premium on the silver -gold fund is around 15%.

 

Tomorrow is the release of total employment in the usa and it is considered the biggest number of the month.

Expect a loss of a further 650,000 workers.  This should put the unemployed at over 4 million workers and an unemployment rate of 7.8%.

 

I will give a comprehensive report on Saturday.

bye for now

Harvey

 

 

 

Wednesday, March 4, 2009

March 4/09 commentary

 
 
Good evening Ladies and Gentlemen:
 
Gold closed down by 5.80 to 906.00.  Silver on the other hand rose by 16 cents to 12.88
 
The Dow rose by 149 points on news that China was going to stimulate their economy.  To me that would be neutral news because the Chinese would need to cash in all of those usa bonds.  Then who would finance all of the the usa's new 2 trillion dollar deficit. I guess no body thought of that.
 
Blanchard, the coin specialist got world that the ECB had dumped over 240 tonnes of gold over this past 3 weeks.
Usually, the ECB makes a news report right after a sale.  I doubt very much the story of the ECB selling any gold.  I strongly believe that the usa is behind all the sales.
 
However, even though the Dow rose by 149 points, two stocks fared poorly today:  General Electric and JPMorgan.  This was todays big news:
 
.
 

BUT THE BIGGIE BIGGIE was the HORRENDOUS price action of both JPM and GE.

*Finally the DOW moves up, yet JPM loses $1.71 per share, putting in a $18.80. If the DOW had closed lower, JPM would have tanked BADLY. Word to me today is the nightmare scenario brought your way about JPM these past many months is THE WAY IT IS and kicking into high gear. Their derivatives book is blowing up and the Fed is in a panic ... TOO BIG TO BAIL is the problem!

What is occuring at JPM, and in all the major financial institutions, is disintermedation(according to my plugged-in savvy sources who clued us in to the JPM mess debacle way back when). Counterparties are pulling out of MANY bank/financial firm deals because they have have no faith they will get there money on those deals. And who has the MOST counterparties of all with their hundreds of trillions of derivatives? JP Morgan Chase! Their disintermediation problem is mounting. Result:
     
  1. It is called PANIC! and then there is
  2. *GE, a small fry compared to JPM, but a mega American name and an increasing embarrassment to The Muppets and CNBC. They are in the hunt in the race to zero for former elite American firms. Their share price sank another 32 cents to $6.69, after making a $5.72 low. It is the same case here as JPM. Had the DOW not charged higher, GE was dead meat today. Both might be tomorrow! No wonder President Obama was out beating the drums.
  3. Both JPM and GE are are loaded with toxic derivatives. Meanwhile, the ridiculous AIG coninues to lead the way to zero, finishing the day flat at a pitiful 43 cents. To view these stinko charts…http://www.stockwatch.com/utilit/utilit_snapsh_result.aspx.
JPmorgan closed at 19.20 and General Electric closed at 6.69. end
 
Here is more news on the GE situation:

       

Dave from Denver with the scoop…
GE credit defaulty swap is 17% bid 19% offered
Good morning Jack Welch!http://acrossthecurve.com/?p=3577This bond trader heard that CDS buyers want 20% up front, but as he points out, he has not seen a trade like that actually "print." Let's look at the quoted "bid" side of 17%. That essentially means the market is saying that GE debt should be rated triple-C. It also implies a very high probability of bankruptcy. GE is so complex and has so much off-balance-sheet crapola, that we might not get so see until GE is in receivership, that I would just as soon stay away from GE as an investment altogether. There's probably some value left to shorting the stock… more later…

re: the 20% cost to insure GE debt against default

In my experience as a bond trader, and especially junk bonds, I found the bond market to be much more efficient at pricing in risk and forecasting future problems with a company. Bond investors tend to do a lot more thorough investigation of a company's "credit" quality, something the ratings agencies have been failing miserably on. The bond investors also often get a peek at the information bank debt investors have access to (even though technically they should not - my bond desk was right next to the bank trading desk). If GE credit default protection costs 20% up front now, a GE restructuring of some sort is coming soon to a theatre near you. Certainly today's stock price action in GE is starting to discount these facts. Be nice if burned investors start filing lawsuits against GE and CNBC….

GE on the hook for $8 billion in credit default payments

if they get downgraded.  end

The bonds of GE are trading as if they are C rated or junk.  A credit default swap on GE is 20% of 10 million  plus 455,000 per year for 5 years.  So to protect a 5.75% of 10 million dollars, the insurance on default is as follows:
 
2.27 million dollars in payments  (455000 x 5)
plus  2.00 million up front, for a total payment of
4.27 million dollars.
 
The bond holder receives  538,000 per year for 5 years or 2.67 million dollars.
the street is betting that GE defaults!!!

     

This morning the street was greeted with news on the jobless claims and they were much higher than expected.  Here is the report:
 

    08:15 Feb ADP Employment reports payrolls (697K) vs. consensus (630K) 
    * * * * *

    U.S. planned layoffs in February fall from 7-year peak 

    NEW YORK (Reuters) - Planned layoffs at U.S. firms fell 23 percent in February from January's seven-year peak, but remained well above long term averages as the protracted U.S. recession took a heavy toll on employment, a report showed on Wednesday. 

    Employers announced plans to cut 186,350 jobs in February, led by the auto industry, down from 241,749 in January, amid an economic slump that is on track to be the most protracted since World War Two, outplacement company Challenger, Gray & Christmas said on Wednesday in its monthly report. 

    "The decline in job cuts last month offers some hope that January was the peak and we will now see layoffs begin to fall or at least stabilize," said John A. Challenger, chief executive officer of Challenger, Gray & Christmas, in a statement. 

    But he said monthly job cuts may remain above 100,000 in the first half of the year and possibly for the rest of 2009. 

    Job cuts could continue to be particularly heavy in the automotive, manufacturing and financial sectors, he added. 

    February layoffs were led by the automotive sector, which announced 61,288 planned cuts, or about one-third of the monthly total. The next biggest sectors were industrial goods industries with 19,462, retail with 18,759, and financial with 13,550. 

    The Challenger data comes ahead of the government's closely watched non-farm payrolls report on Friday, which is expected to show 648,000 jobs were lost in February, according to the median of forecasts in a Reuters poll. 

    -END-

    07:30 Challenger reports job cuts in Feb (23%) to 186.35K 
    * * * * *

    Late in the day we got word that the Fed saw that the economy had deteriorated further in Feb.  This is known as the Beige book report. Here is the report released at 2 oclock:


    * * * * *14:06 Fed says US economy deteriorated further in February -- Beige Book 
    The report says nat'l economic conditions deteriorated further during the period of Jan through late Feb. 10 of 12 districts reported weaker conditions or declines in economic activity, with the deterioration broad based. Consumer spending remained sluggish and reports on manufacturing suggested deep declines in activity in some sectors and pronounced declines overall. Lending activity fell further overall, while the availability of credit remained generally tight. The Dow is modestly higher, though the markets have pretty much dismissed the news, as a dismal report had been expected: Dow +2.12% to 6868.27.

     

    We learned late in the day that 8.3 million mortgages are underwater as values sink.  Here is the report:

      More Than 8.3 Million U.S. Mortgages Underwater as Values Sink

      March 4 (Bloomberg) -- More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth as the recession cut home values by $2.4 trillion last year, First American CoreLogic said.An additional 2.2 million borrowers will be underwater if home prices decline another 5 percent, First American, a Santa Ana, California-based seller of mortgage and economic data, said in a report today. Households with negative equity or near it account for a quarter of all mortgage holders.

      "We have way too much supply and not enough demand," Sam Khater, senior economist for First American, said in an interview. "People aren’t going to purchase a home as long as prices keep falling, and someone who is worried about their job isn’t going to purchase a home either."Prices in 20 U.S. cities fell 18.5 percent in December from a year earlier, the fastest drop on record, according to the S&P/Case-Shiller index. Sales of previously owned homes, which account for about 90 percent of the market, fell in January to the lowest since 1997, and new-home purchases plunged to the lowest since records began in 1963, the National Association of Realtors and Commerce Department said.U.S. foreclosure filings exceeded 250,000 for the 10th straight month in January, RealtyTrac Inc. reported, and payrolls plunged by 598,000, pushing the unemployment rate to the highest since 1992, according to the Labor Department…

     

    As far as the usa economy is concerned, everyone believes that their service sector is doing ok.  I guess that this sector is getting killed as well:

     

    U.S. service sector contracts again in February

    NEW YORK (Reuters) - The U.S. service sector shrank further in February but by less than expected, according to a report released on Wednesday. 

    The Institute for Supply Management said its nonmanufacturing index came in at 41.6 in February versus 42.9 in January. 

    The level of 50 separates expansion from contraction in the index, which dates back to July 1997. 

    Economists had expected a reading of 41.0, according to the median of 69 forecasts in a Reuters poll ranging from 37.0 to 44.0. 

    The service sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.

     

    Sheila Bair of the FDIC came out today and basically stated that it too is insolvent.  They will need trillions of dollars to bail out banks and they only have 42 billion dollars to their credit. Here is the story:

      FDIC’s Bair Says Insurance Fund Could Be Insolvent This YearMarch 4 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said the deposit insurance fund could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency."Without these assessments, the deposit insurance fund could become insolvent this year," Bair wrote in a March 2 letter to the industry. U.S. community banks plan to flood the FDIC with about 5,000 letters in protest of the fees, according to a trade group…

      -END-

     

    This is the next bank to default. US bankcorp has reduced its dividend to 5 cents:

     

     

      U.S. Bancorp Cuts Dividend to 5c a Share From 42.5c a Share

March 4 (Bloomberg) -- U.S. Bancorp cut its quarterly dividend to 5 cents a share from 42.5 cents a share. The information was released in a Business Wire statement.
 
Well that is all folks.  Speak to you tomorrow
 
Harvey.

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