Saturday, March 28, 2009

March 28.09 commentary.

 
Good morning Ladies and Gentlemen:
 
Gold closed down by 17.20.  Silver fell by 36 cents  to 13.29.  The volume on the gold comex was huge with estimated volume at 196000 contracts.  They always underestimate so the real volume was probably in excess of 240,000 or about 24 million oz of gold equivalent.  To give you an idea of the enormous size, the world produces around 72 million oz of gold per year.
 
Tle LBMA trades at around 75 million oz per day.  There are two other smaller bourses, Tocom and Dubai.
So yesterday approximately 1 and 1/3 yearly production traded in one day.  Cartel members certainly decided to use firepower to try and quell gold demand.
 
The OI on comex gold rose by 3000 as gold on Thursday refused to buckle under the weight of option holders as they tried to get the strike price lower.  The silver OI hardly budged, closing lower by 200 contracts.
 
Strangely for the 5th consecutive day, both GLD and SLV inventory levels remained static.  I guess if you JPMorgan and HSBC as custodians the above is plausible.  JPMorgan is custodian for silver and HSBC is custodian for GLD (gold).
 
In economic news, yesterday, the US Government released 4th quarter GDP figures and the contraction came in at 6.3% on a yearly basis.  This was somewhat better than expected.  The King report and John Williams Shadow statistics study in detail the GDP numbers.  Williams believes in the GDI number or Gross Domestic Income.  Here are their reports to you to study:
 

The GDP factoid that disturbs us the most is that imports were revised 1.5% lower to a decline of 17.5%, which boosts GDP, yet there was no revision to personal consumption …PS – The peculiarity of GDP accounting is that a decline in imports, which usually signifies economic ebbing, increases GDP.

John Williams: Against reporting of underlying economic series, the annualized quarterly contraction likely was in excess of 7% for the fourth quarter, but the latest revised 6.3% estimate remains the closest to reality reported by the BEA in a long time. Nonetheless, GDP reporting remains virtually worthless and is little more than political propaganda…

With a widening discrepancy versus GDP, the theoretically-equivalent GDI showed a real fourth-quarter annualized contraction of 7.54%...

http://www.shadowstats.com/article/flash-update-79

The FT: The decline in corporate profits also sapped government coffers, as taxes paid on corporate income fell by 33.1 per cent.

"All the incoming data suggest that the economy will contract by a staggering 7 to 8 per cent in the first quarter, before the economy begins to stabilise," said Nariman Behravesh, chief economist at IHS Global Insight.

http://www.ft.com/cms/s/0/9a973c12-19fe-11de-9f91-0000779fd2ac.html

 

end

 

You can see that the GDP is better because of lower imports.  The consumer who represents 70% of GDP showed contraction in the area of 7%. IHS Global Insight believes contraction will be in the area of 7-8%.

Ok lets start with new economic numbers.  Feb personal income fell by .2% but personal spending rose  by .2%.  The economy is still in the dumpster.  Here is the report:

08:30 Feb Personal Income (0.2%) vs. consensus (0.1%); Personal Spending 0.2% vs. consensus 0.2%
PCE Deflator y/y 1.0% vs. consensus 0.8%. PCE Core (m/m) 0.2% vs. consensus 0.2%. Jan Income revised to 0.2% from 0.4%. Jan Spending revised to 1.0% from 0.6%. 
* * * * *

end

Michigan confidence levels frose to 57.3 from 56.8 a slight improvment. Here is the report:

09:55 Mar Univ. of Michigan Confidence 57.3 vs. consensus 56.8
Prior reading was 56.6. 
* * * * *

This is the biggest story of the day and reinforces another Bloomberg article on the subject on Thursday.  Here is the report:

Soros Says Commercial Property Values Will Fall 30%

March 26 (Bloomberg) -- Billionaire investor George Soros said U.S. commercial real estate will probably drop at least 30 percent in value, causing further strains on banks.

"Commercial real estate has not yet fallen in value," Soros, speaking at a forum in Washington, said. "It is inevitable, it is written, everybody knows it, there are already some transactions which reflect and anticipate it, so we know, they will drop at least 30 percent."

U.S. commercial real estate values have fallen 30 percent from the 2007 peak as cheap financing disappeared and the recession reduced occupancies, RREFF, the real estate investment unit of Deutsche Bank AG, said yesterday in its 2009 forecast. Total returns in a commercial property index used by pension funds may decline as much as 11 percent this year, the group said.

Soros, 78, said the risk of further declines in property prices is reason for the administration of PresidentBarack Obama to move quickly to recapitalize banks. Soros said Obama acted too slowly on a banking overhaul and should have moved immediately upon taking office…

-END-

 

Wow! JPM is now saying that the first quarter is not going to be as rosy as they told the world only a month ago! 

http://finance.yahoo.com/news/Wall-St-adds-losses-after-rb-14768628.html?sec=topStories&pos=main&asset=TBD&ccode=TBD 

Another Friday night bank closure:

U.S. govt seizes Omni Natl Bank after losses 

WASHINGTON, March 27 (Reuters) - Georgia-based Omni National Bank was seized on Friday and placed into receivership under the Federal Deposit Insurance Corp, the U.S. government said on Friday. 

The bank had about $980 million in assets at the end of 2008, the Office of the Comptroller of the Currency said in a statement. 

Omni National Bank had six branches in Atlanta and Dalton, Georgia; Chicago, Illinois; Tampa, Florida; and Houston and Dallas, Texas, the government said. It also had two loan production offices in Birmingham, Alabama, and Philadelphia, Pennsylvania. 

The bank, with approximately $980 million in assets at Dec. 31, 2008, was established in 2000. 

The bank was seized after finding Omni National Bank had "experienced substantial dissipation of assets and earnings due to unsafe and unsound practices," the comptroller's office said. Losses at the bank have depleted most of its capital and there is "no reasonable prospect" that Omni National Bank would become adequately capitalized without federal assistance, it said.

end

This willl play havoc on the world:

New Rule Would Allow Banks To Choose Values Of Their Assets 
March 26, 2009 12:00 PM

The Financial Accounting Standards Board quietly buckled to banking-industry pressure last week and proposed new accounting practices that would allow banks to value assets at a higher price than they could currently be sold for.

Banks have long demanded the "mark-to-market" accounting rule change, arguing that it’s unfair to require them to mark toxic assets down to current market prices because the very market for those assets is frozen.

The move marks a shift for Robert Herz, head of the FASB, who recently told a panel of lawmakers that the harshest critics of mark-to-market accounting practices have been the very same banks that have gone under when regulators would not let them adjust their accounting. Herz and other regulators have been under intense congressional pressure to reform the rules.

"I will tell you that I get calls and visits from some of those institutions that are now in government hands, about two weeks before they get taken over, trying to get the accounting changed," he said. "Clearly some of the most vocal opponents of fair value and mark-to-market have been some of those institutions that ultimately failed and have had to have billions of taxpayer dollars put into them."

House Speaker Nancy Pelosi (D-Calif.) said that she’s been consulting with former Federal Reserve Chairman Paul Volcker regarding the reform.

"I’ve talked to Mr. Volcker about this, who knows a great deal about it. And I think caution is important in it, but I think attention is necessary," said Pelosi in a brief interview with the Huffington Post.

She said that she’s following the issue closely. "I think it has to be done with care. But we have to pay some attention to it because the current system is not working," she said. "It’s the whole thing: If you mark it too low, what’s the price?"

More…

-END-

 

The key event day will be April 2.09 when the Group of 20 meet.  Will they seek a new reserve currrency. We will just have to wait.

Harvey.

 

 

 

March 28.09 commentary.

 
Good morning Ladies and Gentlemen:
 
Gold closed down by 17.20.  Silver fell by 36 cents  to 13.29.  The volume on the gold comex was huge with estimated volume at 196000 contracts.  They always underestimate so the real volume was probably in excess of 240,000 or about 24 million oz of gold equivalent.  To give you an idea of the enormous size, the world produces around 72 million oz of gold per year.
 
Tle LBMA trades at around 75 million oz per day.  There are two other smaller bourses, Tocom and Dubai.
So yesterday approximately 1 and 1/3 yearly production traded in one day.  Cartel members certainly decided to use firepower to try and quell gold demand.
 
The OI on comex gold rose by 3000 as gold on Thursday refused to buckle under the weight of option holders as they tried to get the strike price lower.  The silver OI hardly budged, closing lower by 200 contracts.
 
Strangely for the 5th consecutive day, both GLD and SLV inventory levels remained static.  I guess if you JPMorgan and HSBC as custodians the above is plausible.  JPMorgan is custodian for silver and HSBC is custodian for GLD (gold).
 
In economic news, yesterday, the US Government released 4th quarter GDP figures and the contraction came in at 6.3% on a yearly basis.  This was somewhat better than expected.  The King report and John Williams Shadow statistics study in detail the GDP numbers.  Williams believes in the GDI number or Gross Domestic Income.  Here are their reports to you to study:
 

The GDP factoid that disturbs us the most is that imports were revised 1.5% lower to a decline of 17.5%, which boosts GDP, yet there was no revision to personal consumption …PS – The peculiarity of GDP accounting is that a decline in imports, which usually signifies economic ebbing, increases GDP.

John Williams: Against reporting of underlying economic series, the annualized quarterly contraction likely was in excess of 7% for the fourth quarter, but the latest revised 6.3% estimate remains the closest to reality reported by the BEA in a long time. Nonetheless, GDP reporting remains virtually worthless and is little more than political propaganda…

With a widening discrepancy versus GDP, the theoretically-equivalent GDI showed a real fourth-quarter annualized contraction of 7.54%...

http://www.shadowstats.com/article/flash-update-79

The FT: The decline in corporate profits also sapped government coffers, as taxes paid on corporate income fell by 33.1 per cent.

"All the incoming data suggest that the economy will contract by a staggering 7 to 8 per cent in the first quarter, before the economy begins to stabilise," said Nariman Behravesh, chief economist at IHS Global Insight.

http://www.ft.com/cms/s/0/9a973c12-19fe-11de-9f91-0000779fd2ac.html

 

end

 

You can see that the GDP is better because of lower imports.  The consumer who represents 70% of GDP showed contraction in the area of 7%. IHS Global Insight believes contraction will be in the area of 7-8%.

Ok lets start with new economic numbers.  Feb personal income fell by .2% but personal spending rose  by .2%.  The economy is still in the dumpster.  Here is the report:

08:30 Feb Personal Income (0.2%) vs. consensus (0.1%); Personal Spending 0.2% vs. consensus 0.2%
PCE Deflator y/y 1.0% vs. consensus 0.8%. PCE Core (m/m) 0.2% vs. consensus 0.2%. Jan Income revised to 0.2% from 0.4%. Jan Spending revised to 1.0% from 0.6%. 
* * * * *

end

Michigan confidence levels frose to 57.3 from 56.8 a slight improvment. Here is the report:

09:55 Mar Univ. of Michigan Confidence 57.3 vs. consensus 56.8
Prior reading was 56.6. 
* * * * *

This is the biggest story of the day and reinforces another Bloomberg article on the subject on Thursday.  Here is the report:

Soros Says Commercial Property Values Will Fall 30%

March 26 (Bloomberg) -- Billionaire investor George Soros said U.S. commercial real estate will probably drop at least 30 percent in value, causing further strains on banks.

"Commercial real estate has not yet fallen in value," Soros, speaking at a forum in Washington, said. "It is inevitable, it is written, everybody knows it, there are already some transactions which reflect and anticipate it, so we know, they will drop at least 30 percent."

U.S. commercial real estate values have fallen 30 percent from the 2007 peak as cheap financing disappeared and the recession reduced occupancies, RREFF, the real estate investment unit of Deutsche Bank AG, said yesterday in its 2009 forecast. Total returns in a commercial property index used by pension funds may decline as much as 11 percent this year, the group said.

Soros, 78, said the risk of further declines in property prices is reason for the administration of PresidentBarack Obama to move quickly to recapitalize banks. Soros said Obama acted too slowly on a banking overhaul and should have moved immediately upon taking office…

-END-

 

Wow! JPM is now saying that the first quarter is not going to be as rosy as they told the world only a month ago! 

http://finance.yahoo.com/news/Wall-St-adds-losses-after-rb-14768628.html?sec=topStories&pos=main&asset=TBD&ccode=TBD 

Another Friday night bank closure:

U.S. govt seizes Omni Natl Bank after losses 

WASHINGTON, March 27 (Reuters) - Georgia-based Omni National Bank was seized on Friday and placed into receivership under the Federal Deposit Insurance Corp, the U.S. government said on Friday. 

The bank had about $980 million in assets at the end of 2008, the Office of the Comptroller of the Currency said in a statement. 

Omni National Bank had six branches in Atlanta and Dalton, Georgia; Chicago, Illinois; Tampa, Florida; and Houston and Dallas, Texas, the government said. It also had two loan production offices in Birmingham, Alabama, and Philadelphia, Pennsylvania. 

The bank, with approximately $980 million in assets at Dec. 31, 2008, was established in 2000. 

The bank was seized after finding Omni National Bank had "experienced substantial dissipation of assets and earnings due to unsafe and unsound practices," the comptroller's office said. Losses at the bank have depleted most of its capital and there is "no reasonable prospect" that Omni National Bank would become adequately capitalized without federal assistance, it said.

end

This willl play havoc on the world:

New Rule Would Allow Banks To Choose Values Of Their Assets 
March 26, 2009 12:00 PM

The Financial Accounting Standards Board quietly buckled to banking-industry pressure last week and proposed new accounting practices that would allow banks to value assets at a higher price than they could currently be sold for.

Banks have long demanded the "mark-to-market" accounting rule change, arguing that it’s unfair to require them to mark toxic assets down to current market prices because the very market for those assets is frozen.

The move marks a shift for Robert Herz, head of the FASB, who recently told a panel of lawmakers that the harshest critics of mark-to-market accounting practices have been the very same banks that have gone under when regulators would not let them adjust their accounting. Herz and other regulators have been under intense congressional pressure to reform the rules.

"I will tell you that I get calls and visits from some of those institutions that are now in government hands, about two weeks before they get taken over, trying to get the accounting changed," he said. "Clearly some of the most vocal opponents of fair value and mark-to-market have been some of those institutions that ultimately failed and have had to have billions of taxpayer dollars put into them."

House Speaker Nancy Pelosi (D-Calif.) said that she’s been consulting with former Federal Reserve Chairman Paul Volcker regarding the reform.

"I’ve talked to Mr. Volcker about this, who knows a great deal about it. And I think caution is important in it, but I think attention is necessary," said Pelosi in a brief interview with the Huffington Post.

She said that she’s following the issue closely. "I think it has to be done with care. But we have to pay some attention to it because the current system is not working," she said. "It’s the whole thing: If you mark it too low, what’s the price?"

More…

-END-

 

The key event day will be April 2.09 when the Group of 20 meet.  Will they seek a new reserve currrency. We will just have to wait.

Harvey.

 

 

 

Thursday, March 26, 2009

March 25.09 commentary.

Today was a momentous occasion for gold in that for the first time in 15 years, gold actually rose on option expiry day.  Gold finished up a total of $4.40 to $939.80, while Silver was really shining rising 18 cents to $13.65.
 
The open interest on gold rose 3030 contracts to 390,200 while some major short covering is taking place in the silver pits as Open interest lowered 92 contacts to 93,060.
We saw the following today on the March comex gold contract.  I would like to point out that the March contract is an off month delivery so this was options on gold exercised and a huge 3.5 tonnes of gold were removed from the comex.  Here is the report:
 
Goldman Sachs bought 1084 contracts today in the expiring March Contract and stood for delivery! Looks like they are desperately short of physical gold! This brings the delivery notices for March to 4,141 contracts. That is 414,100 ozs. The COMEX registered category stands at 2.9 Mozs so this is 14.2% of the dealer inventory in a single month. Meanwhile the delivery notices for silver are at 3,490 contracts which is17.45 Mozs. The registered category is at 71.1 Mozs so the deliveries represent 24.5% of the dealer silver inventory. These are VERY significant developments.
Cheers
Adrian
 
And this from Dave from Denver:
Yes, today was very interesting for two reasons. We found out that the 1100 or so contracts that were added on Tuesday to the March open interest were delivered yesterday. I also think it was significant that they could not close Comex April gold below $925, because there were a lot of open calls that in the money between 900 and 940. It will be interesting to see if those calls convert to contracts and I think April deliveries could be very interesting to watch. I also firmly believe that when we are tabulating gold available to deliver on the Comex, we have to include the amount of 100 oz bars IAU (anothr gold ETF) owns but are held in custody by the Comex warehouses.
 
In economic news, we saw treasuries advance as the 7 year note went well.  The problem is we are not sure anybody else bid for the bonds other than the government:

Treasuries Advance as 7-Year Note Sale Draws Yield of 2.384%

March 26 (Bloomberg) -- Treasuries rose as the government’s record $24 billion sale of seven-year notes drew a yield of 2.384 percent.

The yield was close to the 2.385 percent forecast in a Bloomberg News survey of 10 bond-trading firms. Treasuries rose before the auction, the third in the government’s record $98 billion sale of notes this week.

The benchmark 10-year note’s yield fell four basis points, or 0.04 percentage point, to 2.77 percent at 1:03 p.m. in New York, according to BGCantor Market Data…

-END-

Today, being Thursday we see the jobless benefits.  They ran at a record 5.56 billion while new claims rose to 652000.  They expected the jobless to be 5.48 billion and new claims to be around 650,000.  The economy does not look like it is getting healthier.  Here is the report on the jobless figures:
 
 

US workers on jobless benefits at record 5.56 mln 

WASHINGTON, March 26 (Reuters) - The number of workers collecting state unemployment benefits rose to a record 5.56 million earlier this month, while new claims rose to 652,000 in the week ended March 21, the Labor Department said on Thursday. 

Analysts polled by Reuters had expected continued claims to total about 5.48 million during the week ended March 14, the most recent data available. The number of new claims for the week of March 21 had been forecast at 650,000.

-END-

I pointed out to you that the next bombsell will be commercial real estate as business is basically lousy everywhere.  There are many securitized loans backed by office buildings, hotels stores and other investment property that are going south as the default rates on thse securities are reaching 30%.  The banking sector could lose as much as 250 billion from the commercial downturn!. Here is the report on this:
 
 
21:06 WSJ discusses commercial real-estate woes 
The troubles surrounding commercial real-estate loans have been widely reported. Citing recent research from Deutsche Bank, the Journal says that the delinquency rate on about $700B in securitized loans backed by office buildings, hotels, stores and other investment property has more than doubled since September to 1.8%, just shy of the highest rate during the last downturn early this decade. Deutsche Bank expects the default rates on these securities to reach as high as 30%, while the loss rates could reach more than 10%. In addition, Deutsche Bank predicts that of some $154.5B of securitized commercial mortgages coming due between now and 2012, about two-thirds likely won't qualify for refinancing. The paper also highlights data from Foresight Analytics that shows that the US banking sector could suffer as much as $250B in losses from the current commercial-real-estate downturn, compared to the $48.5B in charges on commercial-real-estate debt between 1990 and 1995.
Reference Link (subscription required)
 
This is big.  The attorney general of NY is now probing AIG on their credit default swaps.  If he undestands these instruments they will award him a PhD in Economics. This is not good for the bankers to have the attorney general probing these toxic financial instruments.  Here is the report:
 

AIG Payments to Banks Should Be Probed, Lawmakers Say

March 26 (Bloomberg) -- Lawmakers called for a federal investigation into $50 billion in payments to banks after the government bailed out American International Group Inc."We would like to know if the AIG counterparty payments, as made, were in the best interests of the taxpayers," said 27 members of Congress led by Elijah Cummings, a Democrat from Maryland, in a letter to Neil Barofsky, inspector general for the Troubled Asset Relief Program.Lawmakers are frustrated with the growing cost to prop up New York-based AIG, which had its bailout revised three times to a total of $182.5 billion after the company was unable to meet commitments to banks that bought protection on fixed-income holdings from the insurer. Chief Executive Officer Edward Liddy, under pressure from Congress, has asked employees of the unit that sold the swaps to return bonus money.

Banks that bought credit-default swaps from AIG got $22.4 billion in collateral and $27.1 billion in payments from a U.S. entity to retire the derivatives, the insurer said earlier this month. Goldman Sachs Group Inc., Deutsche Bank AG., and Societe Generale SA were among the largest recipients.

-END-

 

This is Bloomberg's story on the above:
 
 
Cuomo Subpoenas AIG Swap Data in Taxpayer Fund Probe (Update5) 

By Karen Freifeld

March 26 (Bloomberg) -- New York Attorney General Andrew Cuomo subpoened American International Group Inc.’s credit- default swap data to see whether its customers including Goldman Sachs Group Inc., Societe Generale SA and Deutsche Bank AG were improperly compensated with taxpayer dollars.

“Our investigation into corporate bonuses has led us to an investigation of the credit-default swap contracts at AIG,” Cuomo said in a statement. “CDS contracts were at the heart of AIG’s meltdown. The question is whether the contracts are being wound down properly and efficiently or whether they have become a vehicle for funneling billions in taxpayer dollars to capitalize banks all over the world.”

end..

 

This is absolutely big:

 

About a month ago I posted the story about JP Morgan relinquishing their dividends to conserve cash.  They said this is only in contingency and they are making still making profits.  They then announced that the first two quarters of 2009 were extremely positive, backing Citibank and Bank of America with similiar announcements.  From that day on until today the stock market has rallied from 6500 to 7900 (1400 gain or 21%).   This is taking place when we have not even seen any earnings on these banks.  The earnings that are still being released show the economy is still in dismal shape, and that companies are still laying off workers.
 
Now we hear today that JP Morgan is delaying pension payments, which seems to me that they are raiding their own employees accounts to conserve cash.  There is something very fishy here, and they must be desperate for them to raid the cookie jar.  Please find the article below:
 
JPMorgan Said to Delay Contributions to Employees’ 401(k) Plans 

By Josh Fineman

March 26 (Bloomberg) -- JPMorgan Chase & Co. will delay contributions to 401(k) retirement plans for salaried employees until the end of the year and may reduce the payments, according to a person who received a company memo on the changes.

Workers making $50,000 to $250,000 annually will cease getting the contributions every two weeks and may see the benefits adjusted to a yet-to-be-decided amount, according to the person, who declined to be identified because the New York- based bank hasn’t disclosed the new policy. The dollar-to-dollar match for those earning less than $50,000 won’t change, the person said.

JPMorgan, which is the biggest U.S. bank by deposits and has a global workforce of about 200,000, doesn’t contribute to retirement plans of employees with annual salaries of more than $250,000.

“JPMorgan is using this period to tighten up all of if its costs structures right across the board,” said Richard Bove, an analyst at Rochdale Securities in Lutz, Florida. Chief Executive Officer Jamie Dimon is “just battening down the hatches.”

 
There has been a lot of talk on the British bond auction faillure. We have enclosed a link of a British opposition member stating that England is now broke and cannot raise any more money.  He called the Prime Minister, a devalued Prime Minister in a devalued government.  Here is the link:
 
 
The options expired today at 1:30 and the April contract on gold went off the board. We will see if the Goldman Sachs move today will have any significance on the comex
 
see you on Saturday
Harvey.

Wednesday, March 25, 2009

March 25.09 commentary.

 
Good evening Ladies and Gentlemen:
 
Gold closed at its high at a price of 928.00.  Silver rose to 13.42.  This was done one day prior to options expiry. Many had expected the metals to be hit and they were, however, big buyers showed up driving both metals higher.
The open interest on gold comex rose 4500 contracts with gold falling yesterday.  No question there is short selling to prevent gold from taking off.   Silver's OI remained constant.  In this arena it seems that cartel members are covering their silver shorts.
 
Ok lets talk about the economic news of the day/  First of all, the market started strong with gold down when this announcement hit the floor:
 

REUTERS DOLLAR TRADES AT SESSION LOW VS EURO AFTER GEITHNER SAYS OPEN TO MOVING TO SDR-LINKED CURRENCY SYSTEM

Then it reversed itself when Reuters announced this:

REUTERS DOLLAR PARES LOSSES VS EURO AFTER GEITHNER SAYS DOLLAR LIKELY TO REMAIN WORLD'S RESERVE CURRENCY FOR LONG TIME

It is getting into the mainstream that there will be a big meeting of the G20 on April 2.09  It is rumoured that many want a new reserve currency. Tge SDR is a special drawing right or in layman's terms a gold backed international currency.

This news shook Europe.  England announced that for the first time ever its bond auction had failed.

It did sell some bonds but that was to themselves. It is a failure if they cannot sell everything. Here is the news report:

 

Treasury Notes Fall for Fifth Day Before Five-Year AuctionMarch 25 (Bloomberg) -- Treasury notes declined for the fifth day as the U.K. suffered a failed debt auction and the U.S. prepared to sell $34 billion in five-year notes, raising concern record amounts of government debt will overwhelm demand.http://www.bloomberg.com/apps/news?pid=20601009&sid=ag3IPXajMSsc&refer=bond-END-

Even today, the Federal Reserve had a lukewarm reception for its bonds.  Todays auction was for a 2 year notes which generally go quite well.  Not today. 

 

Here is a report on the Federal Debt. As I pointed out to you yesterday, we had reached 11.041 trillion.

For the past 30 years or so, the Fed has borrowed the social security surplus to minimize going to the debt market.  The surplus for the past 12 months has fallen to 191 billion from 300 billion the year before.  This means that the Fed needs to tap the debt market even more than before.  Here is the report:

The Federal Debt has resumed its rapid ascent again and it’s increases for the past year and for the fiscal year since September 30, 2008 are tremendous. The Federal Debt is currently $11,041,711,544,305.34 and it crossed the $11 trillion mark for the first time just 9 days ago on 3/16/09. Over the last 12 months, the Federal Debt has increased $1,649 billion dollars. For the fiscal year it has increased $1,017 billion and the fiscal year is not even half over yet. Worse yet, the surplus from Social Security and Medicare is dropping. This surplus for the last 12 months is $192 billion which is below previous annual rates of around a $300 billion surplus. Also, in past years when the annual deficit was around $600 billion, the $300 billion SS/Med surplus meant the government only had to borrow $300 billion per year from the market to pay its bills. The governments reliance from the market for its bonds and notes has now reached $1,457 billion over the last 12 months. Needless to say, the continuation of this borrowing is not possible and we now have the Fed admitting that they will start printing money to buy the treasuries. Now that the Fed has opened this door, I doubt they will be able to shut it as they will now have to both monetize the debt and buy treasuries from current holders who will sell because of the falling dollar. Regards,
Bryant end

Yesterday, I commented to you on a new program where the fed was going to monetize 300 billion dollars of bonds by purchasing these bonds with freshly minted paper money.  Now we are led to believe that they had already started the program and 162 billion had already been purchased. That means that the entire facility is over 462 billion dollars.  I guess they will reach their debt ceiling in a few days. Here is the report:

 

Todays announcement that the Fed would start buying treasuries tomorrow is rather interesting. On march 18 the fed annouced that they had instituted a program to buy treasuries as well as agency securities. The amount of treasuries to be bought under the program was 300 billion dollars. The Fed and their team of manipulators had been capping interest rates on the ten year at just over 3% and the 30 year at 3.7%. Before the fed announcement the interest rate on the 30 year was attempting to breakout above 3.8%.The fed report for the week ending march 18 showed the fed bought $162 Billion !! treasuries. That's more than half the amount for the entire program. It happened during the week that they announced the program. Since the original announcement rally treasuries have been sinking. Especially the 30 year which had already broke the old 3.7% limit until the end of the day (Mar 24) Fed buying announcement. So I guess the program is really $462 billion.  end

Because of all of these massive monetizing of the debt i.e. trillions of dollars of printed money buying treasuries, it is of no wonder that China is thinking that they need to reduce dollar holdings.  Please study carefully the following passage:

China hints at reduction in dollar holdings

Submitted by cpowell on 07:35PM ET Tuesday, March 24, 2009. Section: Daily DispatchesBy Steven C. Johnson
Reuters
Tuesday, March 24, 2009

NEW YORK -- A Chinese proposal to ditch the U.S. dollar for a global basket-based reserve currency suggests China plans a gradual reduction in future dollar accumulation but will not dump its existing stash of U.S. assets, strategists from the Bank of New York-Mellon said on Tuesday.

China's central bank governor on Monday detailed a plan for the world to use the International Monetary Fund's Special Drawing Right, a currency basket comprising dollars, euros, sterling and yen, as a super-sovereign reserve currency.

That came shortly after Chinese Premier Wen Jiabao urged the United States to maintain its creditworthiness and ensure the security of China's massive stash of U.S. Treasury assets….http://www.reuters.com/article/marketsNews/idUSN2461991920090324-END-

and this:

22:18 Hong Kong moots possibility of abandoning currency peg to US dollar - WSJ
At an investors forum, Hong Kong Chief Executive Donald Tsang says the SAR would probably think about linking its currency to the Chinese yuan once that currency becomes fully convertible. While Tsang says any such move is far in the future, his comment is a rare official acknowledgment that the Hong Kong dollar might one day abandon the peg it has employed since 1983 to great economic success.
Reference Link (subscription required)

and this:

China weighs paper gold against dollar as reserve currency

The world outgrew the gold standard decades ago. But a "paper gold" standard might be one way out of the global financial crisis. Zhou Xiaochuan, governor of China’s central bank, has proposed shifting the world from its dependence on the US dollar to a new reserve currency managed by the International Monetary Fund. The idea is good – if only China meant it.

http://www.telegraph.co.uk/finance/breakingviewscom/5042739/Paper-
gold-nice-idea-shame-about-the-politics.html

I find next passage interesting.  Geither is asking Congress for increaseing power to regulate the hedge fund and the key word is the derivative market.  No question he is going to use this power to shovel all of Wall Street's toxic derivatives and place them under AIG's control.  AIG will be a multi trillion dollar derivative landfill by the time this policy is in completion.  Study this passage carefully:

Geithner to Seek Power Over Large U.S. Hedge Funds, Derivatives 

By Robert Schmidt

March 25 (Bloomberg) -- Treasury Secretary Timothy Geithner will ask Congress to bring large hedge funds, private- equity firms and derivatives markets under federal supervision for the first time as part of a revamp of U.S. financial rules.

The Treasury chief will present his proposed framework at a House Financial Services Committee hearing in Washington tomorrow. Under the new so-called rules of the road, the government would get powers to seize and wind down any financial company big enough to destabilize the banking system.

The Obama administration is counting on public anger over the taxpayer-financed rescues of American International Group Inc., Bear Stearns Cos. and other firms to help it win approval for the changes, which could be the most sweeping since the 1930s. Policy makers want to improve the oversight of the financial system now rather than wait until the crisis is over, administration officials said on condition of anonymity.

“We have a moment now where there is broad-based will to change things that people did not want to change in the past,” Geithner said earlier today at a speech in New York. “We want to begin the process now of trying to build consensus while people recognize and are feeling so acutely the damage caused by those basic failures in regulation.”

 

Ladies and gentlemen.  It is late  so I think I better get some sleep. Tonight, i was assisted by my son Stephen in preparing this commentary.

 

Harvey.

Tuesday, March 24, 2009

March 24.09 commentary.

 
Good evening Ladies and Gentlemen:
 
First, I sent this email to Bart Chilton,
 
Bart,
 
I find your latest email to all of us is totally evasive and misleading. If the CFTC had any desire to get to the bottom of this investigation, they would immediately talk to Ted Butler and get his input on the matter.
 
Suggesting that removing spreads to calculate the true net concentrated position goes against basic economic principles and is an extreme distortion of the truth.
 
On top of this you state that it is possible that JPMorgan and/or one other bank may have hedge positions which offset their short position in silver. You have continually harped on this.  You are a regulator.  Go ask them to prove it.  That is your duty and the law gives you the power to ask.  Have all the regulators become mute simultaneously?  Are you  fearing the people you are investigating?  Are you fearing that central government is engaging in illlegal activity and you just do not know how to get around the problem?
 
You are forgetting the true reality of the silver market, by the fact that there are serious shortages of silver on the planet.  The mints are continously short of the metal;  the COMEX is in constant delay in delivering silver to investors redeeming contracts; and most important, the price of physical silver is $3-$5 higher per oz of silver sold on the COMEX.  Moreover, silver has been in backwardation for 43 straights days, indicating massive tightness in the market as investors are paying premiums to receive their silver today.  You have always stated that the COMEX is a price discovering mechanism in order to arrive at the price correctly.  Obviuosly, you have abandoned this philosophy as the fundamental goal of the COMEX.
 
I also wanted to reiterate what Adrian Douglas wrote to you this afternoon. I find it interesting that you have told me on many occasions that the two banks in question may have hedged, or in other words they have a huge long position in an outside market.  I told you categorically that it was impossible.  Now we find that the total derivatives of the two precious metals on the OTC total 94.5 billion dollars, and the two banks JPMorgan and HSBC control 99.39% of those derivatives. Thus your argument to me is false, misleading and you are aborgating your position as commissioner, regulating to protect investors.  There can be no greater crime.
 
Harvey Organ
 
____________________________
Well, Mr. Chilton considering you brought up the issue let me bring to your attention the Derivatives report from the Office of the Comptroller of the Currency for Q3 2008.

http://www.occ.treas.gov/ftp/release/2008-152a.pdf

In this report we find that the total OTC derivatives in gold of a maturity of less than 1 year have a notional value of 94.589B$. Of this total JPMorganchase and HSBC hold 94.014B$ which equates to 99.392% of all gold derivatives held by US commercial banks and Trust Companies for maturity of less than 1 year. I haven’t done any arithmetic that the CFTC might argue with; this is straight from the report. I would think that controlling 99.392% of any market could only be considered manipulative and it didn’t take me 6 months to work that out! In the "precious metals" category which is not defined but is probably mainly silver the same two banks control 88% of the less than 1 year maturity derivatives. The notional value of gold derivatives that these two banks control represents 150% of annual global gold production. Now if you control 99.4% of a derivatives market that is 150% of the ENTIRE underlying physical market what do you think will happen next? When we look at the COMEX we find out; according to CFTC latest reports 3 banks or less control 62% of the commercial net short position (without subtracting spreads). What a surprise! I would be willing to bet that it is actually less than three banks, I would also be willing to bet that it is two banks, I would also be willing to bet that the names of the two banks are drum roll please…JPMorganChase and HSBC.

If I am correct that the "precious metals" category is predominantly silver then the position of JPM and HSBC represents 176% of total annual global production of silver. On COMEX we find that two banks or less control 86.2% of the commercial silver net short position. I would also be willing to bet that the names of the two banks are also JPMorganChase and HSBC.

I don’t know if Mr. Chilton has noted that silver has been in mild backwardation for 43 days. This is unprecedented in history and suggests a coming physical shortage in the wholesale market that has already been present in the retail market for over 12 months, yet the price of silver can not seem to rise above its cost of production (no mining company is making any profit worth talking about). I would suggest that with massive positions being held by two entities on the COMEX and the OTC derivatives market there is a very good reason for that. Price discovery of silver is controlled by the massive over-supply of paper substitutes for silver and NOT by the supply and demand of physical silver. This can continue only as long as there is no shortage in the physical market that exposes the obvious fraud. The backwardation is indicating that the day of reckoning is coming where Samsung will have to find a way to make cell phone batteries out of Paper-Mache! Time is running out for the CFTC to solve this crime before it becomes obvious to everyone.

Adrian Douglas.

OK back to business:

 

Gold closed down by 29.70 to 923.30.  Silver fell by 52 cents to 13.34  The reason for the cartels attack is options expiry which is this Thursday.  This is when the April gold goes off the board.  There are huge calls and puts at around 900 and 925 so the cartel need the price at around 900 to avoid losing considerable dollars and or the metal.  This is of prime concern for them.

This is the big news of the day:

 

Fed to Start Buying Treasuries Tomorrow Under $300 Billion Plan

March 24 (Bloomberg) -- The Federal Reserve said it will start buying long-term Treasuries tomorrow under the $300 billion plan approved by policy makers March 18.

The New York Fed made the announcement in a statement today, releasing the schedule of purchases through next week. The first operation will buy Treasuries maturing from February 2016 to February 2019.

 

In other words, the Fed is already to start the purchase of 300 billion dollars of treasuries.  Everyone forgets that in order to buy these treasuries you need freshly minted dollars.   Today, the Federal Debt is 11.041 trillion dollars.  Another 300 billion and you immediately pass the debt ceiling.

This will be just another headache for Obama.

Today, the Dow succumbed falling 116 points as many have doubts on Geithners plan.  It will certainly quadruple the Feds balance sheet from 2007 to over 4.8 trillion dollars.

 

Tonight, the Japanese government released their export sales.  They were horrific!!!

 

Japanese Exports Plunge 49% as Global Slump Deepens (Update1)

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By Jason Clenfield

March 25 (Bloomberg) -- Japan’s exports plunged by a record in February as deepening recessions in the U.S. and Europe sapped demand for the country’s cars and electronics.

Overseas shipments fell 49.4 percent from a year earlier, the sharpest decline since at least 1980, when the government started to keep comparable data, the Finance Ministry said today in Tokyo. Economists predicted a 47.6 percent drop.

Prime Minister Taro Aso is compiling his third economic stimulus package as a deepening slowdown in Japan’s overseas markets puts thousands out of work at home, threatening domestic demand. Finance Minister Kaoru Yosano said this week said that a new package of as much as 20 trillion yen ($203 billion) is “not out of line” as the economy heads for its worst recession since 1945.

“There’s been a structural shock to the manufacturing sector,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “So yes, the government can create demand temporarily, but that can’t fill the export gap forever.”

The yen traded at 98.23 per dollar at 8:56 a.m. in Tokyo from 98.25 before the report. The currency has weakened 7.8 percent this year, offering some relief to exporters whose profits were eroded by its 23 percent gain in 2008.

Exports of automobiles tumbled 70.9 percent from a year earlier and shipments of semiconductor parts and devices slid 51.1 percent, the ministry said.

end

 

In other developments, we have heard again that China may wish to new reserve currency.  This is what they said today:

China ‘Super Currency’ Call Shows Dollar Concern (Update3)

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By Li Yanping

March 25 (Bloomberg) -- China’s call for the creation of a new international reserve currency may signal its concern at the dollar’s weakness and ambitions for a leadership role at next week’s Group of 20 summit, economists said.

Central bank Governor Zhou Xiaochuan this week urged the International Monetary Fund to create a “super-sovereign reserve currency.” The dollar weakened after the Federal Reserve said it would buy Treasuries and the U.S. government outlined plans to buy illiquid bank assets

“China is concerned about the potential for a slide in the dollar as the U.S. attempts to stimulate its economy,” said Mark Williams, a London-based economist at Capital Economics Ltd. The “rare” sight of a Chinese official attempting to reframe an international debate may be “a sign of China becoming more engaged,” he said.

While Zhou didn’t call for the yuan to become the new reserve currency, his remarks may signal ambitions for China to play a bigger global role. The central bank this week signed a currency swap with Indonesia, adding to agreements since December with South Korea, Hong Kong, Malaysia and Belarus. It’s also preparing for trade settlement in the Chinese currency with Hong Kong, Macau and the Association of Southeast Asian Nations.

Frustration in Beijing

“There is concern and even frustration among top policymakers in Beijing about China’s high exposure to U.S. dollar-denominated financial assets,” said Brian Jackson, senior strategist at Royal Bank of Canada in Hong Kong.

Yuan forwards rose the most in three months with traders betting on appreciation for the first time since September on speculation that the U.S. policies will weaken the dollar. The 12-month forward rate gained 0.9 percent.

U.S. policy makers testifying before lawmakers in Washington today affirmed their support for the dollar.

Treasury Secretary Timothy Geithner, asked at a House Financial Services Committee hearing whether he rejected moving toward a global currency, replied, “I would, yes.”

“I would also,” said Federal Reserve Chairman Ben S. Bernanke. The question was asked by Representative Michele Bachmann, a Minnesota Republican.

Premier Wen Jiabao called on March 13 for the U.S. “to guarantee the safety of China’s assets.” China’s Treasury holdings climbed 46 percent in 2008 and now stand at about $740 billion, according to U.S. government data. The nation is the biggest holder of U.S. debt.

end.

 

I will be quite busy tomorrow, so my son Stephen will write the commentary.

Harvey.

 

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