Saturday, April 4, 2009

April 4.09 commentary.

 
Good morning Ladies and gentlemen:
 
Gold closed down by 12.00 to 895.60.  Silver fell by 28 cents to 12.93.  The OI for gold comex fell by 7000 contracts as longs did not like the relentless attack on gold.  However, silver's OI continues to rise.  The new OI comex silver rose to 93900 up another 332 contracts.  The longs refused to budge meaning the sales were all short sales.
 
Friday was the release of the job numbers and they were pretty dismal.  The unemployment rose to 663000 and they further restated the January figures to 741000 up from 665000. The unemployment rate went to 8.5%.
 
However the famous B/D plug kicked in for the Bureau of Labour.  Another 114000 of phoney jobs were created .  The Bureau uses this model to state that when an individual loses his job (Death) he becomes an entrepreneur and goes into business and employees people  (Birth).  Henece the term Birth/Death.
 
First the official release by the BLS:
 

US March payrolls fall 663,000,jobless rate 8.5 pct 

WASHINGTON, April 3 (Reuters) - U.S. employers slashed 663,000 jobs in March, lifting the unemployment rate to 8.5 percent, the highest since 1983, official data showed on Friday in a report underscoring the growing distress in the labor market. 

The Labor Department also revised January data to show job losses of 741,000 that month, the biggest decline since October 1949, as the economy battles a recession that has entered its 16th month. 

The decline in non-farm payrolls in February was unrevised at 651,000.

Analysts polled by Reuters had forecast non-farm payrolls falling 650,000 in March. They had forecast the unemployment rate rising to 8.5 percent from 8.1 percent the prior month. 

Since the start of the recession in December 2007, the economy has shed 5.1 million jobs, with about two thirds of the losses occurring in the last five months, the department said. 

The manufacturing sector shed 161,000 jobs in March, after eliminating 169,000 positions the prior month. Construction industries lost 126,000 jobs after bleeding 107,000 in February. The service-providing industry axed 358,000 positions after shedding 366,000 in February.

-END-

Now for the real story…

March Employment Analysis


Here’s some analysis I did on the latest jobs report.

The headline number was -663,000 jobs (lost) for March. Though the number was ugly there was lipstick applied onto the pig via the Birth/Death model. Despite job losses being most felt by smaller firms, Joe entrepreneur is still cranking them out. I guess - 6.3% GDP was not enough to dissuade Joe entrepreneur from gaining full employment. The B/D model added 114,000 to the March total otherwise the headline number would have been - 777,000.

From a Reuters article this morning:

"The manufacturing sector shed 161,000 jobs in March, after eliminating 169,000 positions the prior month. Construction industries lost 126,000 jobs after bleeding 107,000 in February. The service-providing industry axed 358,000 positions after shedding 366,000 in February."

Link: http://news.yahoo.com/s/nm/20090403/bs_nm
/us_usa_economy_payrolls_5

So, we have -161,000 Manufacturing jobs lost in March but our buddies at the BLS (Bureau of Labor Statistics) say Joe entrepreneur added +6,000 the same month. The BLS in the report has Joe entrepreneur in the Construction industry adding +23,000 in March but the rest of the US lost 126,000 jobs. We look at the Service Industry shedding 358,000 jobs yet the BLS has +21,000 created in March in the services category and another +41,000 in the Leisure & Hospitality sector.

BLS Birth-Death Model Link: http://www.bls.gov/web/cesbd.htm

I think that the Congress should just past a resolution to remove the "L" out of BLS, but perhaps that would be calling a spade a spade.

end.

 

The government also releases a U6 number for unemployment.  This is not seasonally adjusted and it backs out the B/D stuff.  The U6 came in at 16.2%.

 

John Williams and his Shadow Government Statistics released his figures last night.  He uses the U6 number plus  underemployment figures.  He takes a person who wishes to be fully employed but accepts part time to make ends meet and terms this underemployment.   He takes the unemployed and the underemployed to come up with an unemployment of 19.7%. He removes all seasonally adjusted crap.

 

The huge unemployment is having disastrous problems for social security and disability.  Last year the surplus in the social security account at the Fed was 80 billion.  It is projected to go down to 16 billion dollars this year and then into negative territory next year.  The usa government must fund this.  They will need the help of China and other countries fund this liability.  I will forward you Eric deCarbonnel's paper on this subject:(Note:  Eric comments on a paper written by Lori Montgomery of the Washington Post..he emphasizes important sentences in red and adds his own words in blue. He writes his own interpretation with 8 points following the paper written by Montgomery)

 

Recession Puts a Major Strain On Social Security Trust Fund
As Payroll Tax Revenue Falls, So Does Surplus
By Lori Montgomery
Washington Post Staff Writer
Tuesday, March 31, 2009

The U.S. recession is wreaking havoc on yet another front: the Social Security trust fund. 

With unemployment rising, the payroll tax revenue that finances Social Security benefits for nearly 51 million retirees and other recipients is falling, according to a report from the Congressional Budget Office. As a result, the trust fund's annual surplus is forecast to all but vanish next year -- nearly a decade ahead of schedule -- and deprive the government of billions of dollars it had been counting on to help balance the nation's books. 

While the new numbers will not affect payments to current Social Security recipients , experts say, the disappearing surplus could have considerable implications for the government's already grim financial situation. 

The Treasury Department has for decades borrowed money from the Social Security trust fund to finance government operations. If it is no longer able to do so, it could be forced to borrow an additional $700 billion over the next decade from China, Japan and other investors. And at some point, perhaps as early as 2017 [This year if US keeps losing jobs at the current pace], according to the CBO, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes.

The new forecast is fueling calls for reform of the Social Security system from conservative analysts, who say it underscores the financial fragility of a system that provides a primary source of income for millions of Americans.

"It suggests we better get working on Social Security and stop burying our heads in the sand," said Sen. Judd Gregg (N.H.), the senior Republican on the Senate Budget Committee. "The Social Security trust fund, though technically in balance, is going to put huge pressures on taxpayers very soon." 

Many liberal analysts reject the notion that Social Security needs fixing, arguing that the system is projected to fully support payments to beneficiaries through 2041 -- so long as the Treasury repays its debts[and the dollar maintains its value]. But they agree that the news is not good for the federal budget.

"This is not a problem for Social Security, it's a problem for fiscal responsibility," said Christian Waller, a public policy professor at the University of Massachusetts at Boston and a senior fellow at the Center for American Progress. He said the new estimates would force President Obama and his budget director, Peter Orszag, "to stay on track in what they have set out to do, and that is rein in deficits."

The CBO, Congress's nonpartisan budget scorekeeper, released its most recent estimates for the Social Security trust fund last week as part of its final budget projections for the fiscal year that begins in October.

The trust fund has long taken in more in revenue from payroll taxes and other sources than it pays out in benefits. Last August, the CBO predicted that surplus would exceed $80 billion this year and next, then rise to around $90 billion before slowly evaporating by 2020. But the rapidly deteriorating economy -- particularly the loss of more than 4 million jobs -- has driven those numbers much lower much faster, with the surplus expected to hit $16 billion this year and only $3 billion next year, then vanish entirely by 2017. 

CBO is not the official arbiter of the trust fund's health; that task falls to the Social Security trustees, a panel of Cabinet secretaries and others who are expected to issue a new report later this spring. In his budget, Obama predicted that the trust fund surplus would hit $30 billion this year, according to Mark Lassiter, a spokesman for the Social Security Administration.

But that number, too, is far less than the $80 billion the trustees had forecast for 2009. In addition to declining revenues, Lassiter said the system is likely to incur higher expenses due to big jumps in new retirement and disability claims. Both are expected to rise by at least 12 percent this year compared with 2008.

"There are some people who are, in fact, delaying retirement" because the plunging stock market took a huge bite out of their retirement accounts, Lassiter said. "But the stronger trend is that people who are losing a job are looking for other sources of income. And if you're of retirement age, you're going to go ahead and file for Social Security benefits."

Though Obama has pledged to address the precarious financial situation of Social Security, the administration currently has no plans to do so [Not really his fault. There is no way “to address the precarious financial situation of Social Security”]. Under pressure from congressional Democrats who argued that Social Security should not be at the top of the new administration's agenda, the White House last month dropped a proposal to name a task force to reexamine the program.

During the campaign, Obama proposed applying payroll taxes to annual earnings over $250,000 help fund Social Security after the surplus vanishes. With the new numbers, some analysts said, the president might be forced to step up the timetable.

"Over the past 25 years, the government has gotten used to the fact that Social Security is providing free money to make the rest of the deficit look smaller," said Andrew Biggs, a resident scholar at the American Enterprise Institute. "Now they've essentially got to pay their own way, at least a little more fully. 

"Instead of Social Security subsidizing the rest of the budget," he said,"the rest of the budget will have to subsidize Social Security."

The Washington Post reports about Social Security trust fund projections.

Trust Fund Projections
Due in large part to rising unemployment, the surplus in the Social Security Trust Fund is expected to almost disappear next year, forcing the government to borrow even more money from other sources.



SOURCE: Congressional Budget Office By Tobey - The Washington Post - March 31, 2009

My reaction: The US recession is wreaking havoc on the Social Security trust fund. If the unemployment keeps rising, the Social Security surplus could turn into a deficit this year, further straining the national budget.

1) Due to the deteriorating economy and rising unemployment, the payroll tax revenue which funds Social Security benefits for nearly 51 million retirees is falling.

2) In addition to declining revenues, the system is incurring higher expenses due to big jumps in new retirement and disability claims.

3) The CBO, Congress's nonpartisan budget scorekeeper, expects the Social Security surplus to hit $16 billion this year and $3 billion next year.

4) The Treasury Department has for decades borrowed money from the Social Security trust fund to finance government operations.

"Over the past 25 years, the government has gotten used to the fact that Social Security is providing free money to make the rest of the deficit look smaller. Now they've essentially got to pay their own way, at least a little more fully. “

5) If it is no longer able to count on Social Security surpluses, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes.

"Instead of Social Security subsidizing the rest of the budget, the rest of the budget will have to subsidize Social Security."

6) The system is projected to fully support payments to beneficiaries through 2041, as long as the Treasury repays its debts and the dollar maintains its value.

"It suggests we better get working on Social Security and stop burying our heads in the sand. The Social Security trust fund, though technically in balance, is going to put huge pressures on taxpayers very soon."

7) The rapidly deteriorating economy -- particularly the loss of more than 4 million jobs -- has driven those numbers much lower much faster

8) In his budget, Obama predicted that the trust fund surplus would hit $30 billion this year


Conclusion: As I wrote in my entry, *****Fed Planning 15-Fold Increase In US Monetary Base*****, the accumulation of treasuries by government retirement funds is over.

Retirement inflows into treasuries are over

The steady accumulation of treasuries by government retirement funds has helped absorb the supply of treasury bonds for nearly three decades. This accumulation of government debt to secure the retirement of baby boomers helped drive down treasury yields and fund deficit spending. As of September 2008, the four biggest of these funds held 3.3 trillion treasuries:

2150 billion (Federal old-age and survivors insurance trust fund)
615 billion (Federal employees retirement fund)
318 billion (federal hospital insurance trust fund)
217 billion (federal disability insurance trust fund) (for more on these four funds, see where social security tax amounts are deposited)

3300 billion total

Today, the accumulation of treasuries by government retirement funds is over. Baby boomers are beginning to retire, increasing outflows, and unemployment is rising, cutting inflows. More importantly, the 3.3 trillion already accumulated in these funds provides an enormous political incentive to prevent treasury prices from collapsing. Faced with a run on treasuries, politicians, rather than explaining to baby boomers that their retirement savings are gone, will instruct the fed to monetize treasury bonds. This alone will prevent the fed from reversing its current balance sheet expansion.

3 comments


end.

The fall in the jobs reports means that the coffers at the Treasury are falling.  On top of this, transfer payments to states falls.  As the consumer is both laid off and stretched to the limit, sales tax revenue to the individual states falls precipitously.

Municipalities are hurt because of the falling revenue due to the fall in housing prices and huge mortgage defaults.

The one bright spot for the usa has been the service sector. However it too succumbed last month.  The ISM service sector number remained below the 50 neutral point.  The figure came in at 40.8.  Consensus was for a number of 42.0  Prior months reading was 41.6

Here is the announcment:

10:00 Mar ISM Non-Manufacturing Index 40.8 vs. consensus 42.0
Feb figure was 41.6. 
* * * * *

U.S. services sector shrinks again in March - ISM 

NEW YORK, April 3 (Reuters) - Business activity in the U.S. services sector shrank for a sixth straight month in March as cash-strapped consumers cut back on purchases and the 
employment outlook deteriorated further, according to a report on Friday. 

The Institute for Supply Management's services index dropped to 40.8 last month from 41.6 in February. Economists had forecast a slight rise to 42.0 in the index, where any reading below 50 denotes contraction. 

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

end

The usa major banks have huge toxic junk on its balance sheet.  The Tarp plan was set to remove these toxic assets with funds from the general public.  This next passage will just blow you away:

these banks wish to participate in the PURCHASE of other banks toxic assets.  Please give me a break.

Here is the passage: 

 

Large U.S. banks that have received bailout money from the government, including Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS) and J.P. Morgan Chase & Co. (JPM), are eyeing purchasing troubled assets to be sold by other financial institutions under the Treasury Department's plan to revive credit markets, according to a Financial Times report. The report said the banks' plans are controversial and may raise public ire because the government's public-private partnership is designed to assist banks in selling, rather than acquiring, toxic assets.***

I used the Baltic Dry Index as a measure of how the economy is performing.  If the index is high, it means that ships are loaded with goods and trade is fast and furious.  If it is declining then trade is declining.

 

For the past 6 months, the Baltic Dry Index has been inching up, as some goods were been transported.

Last month it fell off the cliff again.  Here is the report:

Baltic Dry Index dropped 31% this month - interesting story comparing this latest bear market bounce in equities vs. the one in November. Apparently with that one, which ended in early January featured a rising Baltic Dry Index (considered the most impeccable indicator of economic strength). In the current stock mkt run up, the BDI is actually down 31%:

"Additionally, whereas CNBC would chirp every 5 minutes when the Baltic Dry was up, up and away beginning in January, very little attention has been brought to the fact that the BDIY has dropped over 31% over the past month."

end.

 

This next story is very important.  Bridgewater associates are a very intelligent money management firm and very credit worthy.  They were initially very receptive to Geithners new TARP plan  (called PPIP).

They have now changed their minds.  Here is the reason why:

Bridgewater Associates, the $71 billion money-management firm, has come out against participating in Treasury Secretary Tim Geithner's plan to get private investors to buy banks' toxic assets -- a week after saying it was interested in it. In an investor note obtained by The Post, Bridgewater founder Ray Dalio gave Geithner's plan two thumbs-down, arguing that the hopes of would-be buyers probably won't be met by what the government is offering, especially when it comes to the sale of so-called legacy securities. In the note, which is entitled, "Why We Decided Against Buying in the PPIP and Why We Doubt That It Will be Broadly Subscribed," Dalio cited economic and political concerns with Geithner's Public-Private Investment Program, dubbed PPIP, saying the numbers just don't add up -- at least when it comes to PIPP's legacy-securities program. - New York Post

http://www.nakedcapitalism.com/2009/04/hedge-fund-bridgewater-says-no-to.html

 

end.

Here is an article on the GM situation where they had 30 billion dollars in debt in 2006 but they face 200 billion in credit derivatives. Today, it is over 100 billion in debt and unlimited credit derivatives.

What the author did not state was there are at least 1 trillion dollars of credit default swaps written on GM.  This is why this is a major problem and has not been addressed by Obama and his team. Here is the paper:

GM derivatives

Bill, 
I came across an old WSJ article by Henry Sender on Feb. 16th., 2006 titled, "GM Debt Poses Challenge to Derivatives Market". Here is an excerpt from it:

"The financial travails of General Motors Corp. have become a hot topic in the credit-derivatives market, where protection against corporate defaults is bought and sold. That is because a GM default, which isn't immediately likely, could create severe strain, or 
worse, in this unregulated market.

The car maker has about $30 billion in debt. Traders estimate more than $200 billion in credit derivatives are linked to GM. But because such derivatives don't trade on an exchange, nobody knows for certain how much credit-default swap protection has actually been written on GM. And nobody can say with confidence that they even know who is on the other side of the trades that they have entered into."What is important is not only was the danger clearly known three years ago, but their derivatives are STILL the problem. Nobody is mentioning GM's derivative liabilities, which as this article shows are gargantuan. They in all likelihood grew even larger in subsequent years. Once again we have a situation where we don't know WHO the counterparties are to their derivatives, or how much of GM's bailout money they're getting. This explains the desire to break GM into two entities, the "good GM" and the "bad GM". If they break out the derivatives portion they can allocate money to the crony derivatives counter-parties, thus avoiding pro-rata bankruptcy distribution. GM, and the world, is only beginning to understand the chaos of derivatives.

end.

The public debt continues to rise.  The new Federal debt is 11.124 trillion:

 

 

Total Public Debt Outstanding:

 

11,124,519,253.21

 

end.

 

This week begins the earning season and this will finally tell the tale that the economy is either recovering or still falling into an abyss.

 

I would expect to see the earnings of all the S and P 500 to fall into the range to 10-15$ on an annual basis.  Give the S and P 12x earings and you get  Sand P at a maximum of 180 not 835 where it is today.

The consumer is all tapped out.  The banks are eager to lend but they do not have anyone worthy to loan to.  Banks do want to loan to other banks because they fear the mirky shadow banking system is insolvent. In other words, companies that can borrow choose not to do so, and people who want to borrow are unworthy and banks do not want to take the risk.

 

Speak to you on Monday

Harvey.

 

 

 

 

 

 

 

Thursday, April 2, 2009

april 2.09 commentary.

 
Good evening Ladies and gentlemen;
 
Everybody today heard that the new FASB rules were coming into effect and that the banks will not have to write off these toxic assets yet.  Alarm bells were ringing when this was tabled.
late in the day as they clarified what the new proposals will be.  I am forwarding this to you now:
 
Posted: Apr 02 2009     By: Jim Sinclair      Post Edited: April 2, 2009 at 5:59 pm

Filed under: General Editorial

Dear CIGAs,

It appears there is a great deal of confusion about what the FASB did today.

It appears where impaired assets losses are concerned, FASB has caved in and is not requiring immediate write offs.

It appears that where valuation of portfolios is concerned, the rule REMAINS fair market value.

This is the present condition according to FASB.

The assumption in the market today was that FASB had caved in on Fair Market Value which they have not. This is good news for whatever ethics there is left in this degraded system.

end
 
Yesterday, I saw strange things on the comex re the huge deliveries of gold.  I was also alarmed that the ECB sold 35.5 tonnes of gold when they stated that they were finished for the year.  I was also surprised to see Deutsche bank doing the delivery of gold. This bank rarely delivers any metal.   This author seems to have noticed what I noticed and wrote:
Did the ECB save the comex from default?
 
You be the judge.  Here is his paper on the ECB rescue:
 
 
Did the ECB Save COMEX from Gold Default? 60 comments
April 02, 2009 | about stocks: DB / GLD / IAU   
 
Avery Goodman
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On Tuesday morning, gold derivatives dealers, who had sold short in the face of a fast rising gold price, faced a serious predicament. Some 27,000 + contracts, representing about 15% of the April COMEX gold futures contracts remained open. Technically, short sellers are required to give “notice” of delivery to long buyers. However, in reality, buyers are the ones who control the amount of gold to be delivered. They “demand” delivery of physical gold by holding futures contracts past the expiration date. This time, long buyers were demanding in droves.
 
In normal times, very few people do this. Only about 1% or less of gold contracts must be delivered. The lack of delivery demand allows the casino-like world of paper gold futures contracts to operate. Very few short sellers actually expect or intend to deliver real gold. They are, mostly, merely playing with paper. It was amazing, therefore, when March 30, 2009 came and passed, and so many people stood for delivery, refusing to part with their long gold futures positions.
 
On Tuesday, March 31st, Deutsche Bank (DB) amazed everyone even more, by delivering a massive 850,000 ounces, or 850 contracts worth of the yellow metal. By the close of business, even after this massive delivery, about 15,050 April contracts, or 1.5 million ounces, still remained to be delivered. Most of these, of course, are unlikely to be the obligations of Deutsche Bank. But, the fact that this particular bank turned out to be one of the biggest short sellers of gold, is a surprise. Most people presumed that the big COMEX gold short sellers are HSBC (HBC) and/or JP Morgan Chase (JPM). That may be true. However, it is abundantly clear that they are not the only game in town.
 
Closely connected institutions, it seems, do not have to worry about acting irresponsibly, in taking on more obligations than they can fulfill. Mysteriously, on the very same day that gold was due to be delivered to COMEX long buyers, at almost the very same moment that Deutsche Bank was giving notice of its deliveries, the ECB happened to have “sold” 35.5 tons, or a total of 1,141,351 ounces of gold, on March 31, 2009. Convenient, isn’t it? Deutsche Bank had to deliver 850,000 ounces of physical gold on that day, and miraculously, the gold appeared out of nowhere.
 
The announcement of the ECB sale was made, as usual, dryly, without further comment. There was little more than a notation of a sale, as if it were a meaningless blip in the daily activity of the central bank. But, it was anything but meaningless. It may have saved a major clearing member of the COMEX futures exchange from defaulting on a huge derivatives position. We don’t know who the buyer(s) was, but we don’t leave our common sense at home. The ECB simply states that 35.5 tons were sold, and doesn’t name any names. Common sense, logic and reason tells us that the buyer was Deutsche Bank, and that the European Central Bank probably saved the bank and COMEX from a huge problem. What about the balance, above 850,000 ounces? What will happen to that? I am willing to bet that Deutsche Bank will use it, in June, to close out remaining short positions, or that it will be sold into the market, at an opportune time, if it hasn’t already been sold on Tuesday, to try to control the inevitable rise of the price of gold.
 
Circumstantial evidence has always been a powerful force in the law. It allows police, investigators, lawyers and judges to ferret out the truth. Circumstantial evidence is admissible in any court of law to prove a fact. It is used all the time, both when we initiate investigations, and once we seek indictments and convictions. We do this because we deal in a corrupt world, filled with suspicious actions and lies, and the circumstances are often suspicious enough to give rise to a strong inference that something is amiss. Most of the time, when the direct evidence is insufficient to prove a case beyond a reasonable doubt, or even by a preponderance of direct evidence, circumstantial evidence fills the void, and gives us the conviction. We even admit evidence of the circumstances to prove murder cases. In light of that, it certainly seems appropriate to use circumstantial evidence in evaluating possible regulatory violations. The size and timing of the delivery of Deutsche Bank’s COMEX obligation is suspicious, to say the least, when taken in conjunction with the size and timing of the ECB’s gold sale. It is circumstantial evidence that the gold used by Deutsche Bank to deliver and fulfill its COMEX obligations, came directly or indirectly, from the ECB.
 
I’d sure like to know what the ECB’s “alibi” is. If I were an investigator for the Commodities Futures Trading Commission (CFTC), assigned to determine whether or not gold short sellers are knowingly violating the 90% cover rule, I’d be questioning the hell out of the ECB staffers, as well as employees in the futures trading division of Deutsche Bank. There is certainly enough evidence to raise “reasonable suspicion”. Reasonable suspicion is all that one needs to start a criminal investigation. It should be more than sufficient to prompt the CFTC, as well as European market regulators, to start a commercial investigation of the potential violation of regulatory rules by both the ECB and one of the world’s major banking institutions. That is, of course, if and only if, the CFTC staff really wants to regulate, rather than simply position themselves for more lucrative jobs inside the industry they are supposed to be regulating, after they leave government service.
 
It is quite important to determine whether or not Deutsche Bank was bailed out by the ECB because that will answer a lot of questions about allegations of naked short selling on the COMEX. If the ECB knew that its gold would be used as post ipso facto “cover” for uncovered shorting, staffers at the central bank might be co-conspirators. At any rate, if the German bank did sell short on futures contracts without having enough vaulted gold it sold a naked short. It also means that the ECB has facilitated a major rule violation in a jurisdiction (the USA) with which Europe is supposed to have extensive joint regulatory agreements, any number of which may have been violated by this action of the ECB. At the very least, naked short selling is a blatant violation of CFTC regulations, which require 90% cover of all deliverable metals contracts. If the delivered gold came directly, or indirectly, from the ECB, it means that Deutsche Bank’s gold short contracts were “naked” at the time they were entered into.
 
The 90% cover rule is very old rule, designed to prevent fraud on the futures markets. Its origin dates back into the 19th century. Farmers, in that simpler age, were complaining that big bank speculators were downwardly manipulating grain prices on the futures exchanges. Nowadays, the CFTC has a predilection toward categorizing banks as so-called “commercials” or “hedgers”, rather than as the speculators that they really are. Traditionally, only miners and gold dealers whose business involves a majority of PHYSICAL trade in gold should qualify as commercials. However, the CFTC has ignored this for a long time, and qualified numerous banks and other financial institutions, whose main gold business is derivatives, as “commercial” entities, immunizing them from position limits and other constraints. As a result, just like the farmers of the 19th century, today’s gold “cartel” conspiracy theorists revolve their theory around an allegation of downward manipulation, and heavy short selling concentration.
 
Manipulation can only take place when there is a disconnect between supply, demand, and trading activity on the futures exchanges. The 90% cover rule attempts to force a direct tie between the futures market and the availability of particular commodities, so that supply and demand become primary even on paper based futures markets, just as it is in trading the real commodity. Unfortunately, the modern CFTC has ignored or misinterpreted the purpose of the 90% cover rule for a very long time. This regulatory failure has allowed the current free-for-all “casino-like” atmosphere that now prevails at futures exchanges.
 
It would be helpful if some of my colleagues, within the public prosecutor and securities regulatory offices, in Europe, as well as the CFTC in America, filed complaints for discovery, to ferret out the truth. In the interest of transparent markets, the ECB should be forced to disclose who purchased the gold they sold in the morning of March 31, 2008 and why the sale was timed in a way that corresponded to the exact moment in time that Deutsche Bank had a desperate need for gold bullion.
 
Was it yet another bank bailout? Has another bank sucked up precious resources belonging, in this case, to the people of Europe? Gold is needed to bring confidence to the Euro currency, as often noted by Germany’s Bundesbank, which seems to be less kind to German banks than the ECB. Why should the ECB be permitted to sell gold to closely connected derivatives dealers, if the primary purpose is to save those dealers from the bad decisions they have made, and the end result is to reinforce moral hazard? Should banks like Deutsche Bank be allowed to take on more derivative risk than they can afford without involving publicly owned assets? Did Deutsche Bank issue naked short positions? Have innocent European citizens now had their currency placed at more risk, and some of their gold stolen from them, simply to enrich private hands? All of these questions are begging for answers.
 
European regulators are quick to condemn the Federal Reserve for its incestuous relationship to client “primary dealer” banks, special treatment of favored institutions at the expense of other non-favored institutions, propensity toward injecting dollars to artificially stimulate the stock market, seemingly endless bailouts of closely connected banks, and, now, the seemingly unlimited printing of new dollars. I’ll not attempt to excuse the Fed for its failures. Indeed, I believe that it is in the best interest of the American people to close down that malevolent institution, permanently. However, if any of the questions I have posed are answered in the positive, people might begin to understand that special favors, nepotism, corruption, and a failure to properly regulate are not confined to America. The real estate bubble, for example, was allowed to become much bigger in the U.K., Ireland, Spain, and eastern Europe, than it ever was in the USA. The collapse of real estate, in those countries, is going to be more severe, even though it is more recent in origin than the pullback in the USA. America happened to be the first nation affected, but it did not cause the world economic collapse. That was caused by the joint irresponsible policies in almost every major nation in the world.
 
Those who rely on the good faith of Angela Merkel, to keep the Euro inviolate, certainly have a right to get answers from the ECB and from Deutsche Bank. The answers will tell us a lot about the real proclivities of the ECB. As the U.S. dollar is progressively debased, in coming years, will the Euro be any better? Is the ECB merely a European copy of the Federal Reserve “slush fund”, utilized by well connected European banks, for the purpose of private financial gain, much as the Federal Reserve’s assets are utilized by its primary dealers? If the ECB is willing to bail out a major trading institution from the mismanagement of its derivatives operations, who could honestly claim that it would hesitate to competitively debase the Euro against the dollar? Having the answers to the questions I have posed would give everyone the knowledge needed to make important decisions. That is exactly the reason that, in all likelihood, we will never get these answers. Maybe, Europeans and others ought to be dumping Euros just as fast as they are now dumping dollars, and buy gold and silver, instead.
 
Aside from the regulatory issues, if we did discover that Deutsche Bank got its gold from the ECB, one glaringly strong inference arises. When a major derivatives dealer goes begging for gold, to the ECB, it is very strong circumstantial evidence that not enough physical gold is available for purchase on the OTC wholesale market. Up until now, bearish gold commentators have steadfastly denied that wholesale gold shortages exist. Instead, they have insisted that all shortages are confined to retail forms of gold. Now, when combined with the circumstantial evidence, however, common sense tells us that they are wrong.
 
Decision: There is sufficient evidence for this case to go to a full scale investigation. The CFTC and similar securities regulators in Europe need to properly investigate the gold conspiracy allegations. That has never been done to date. They must determine who is buying central bank gold and whether or not it is simply being sold into the open market, or channeled into the hands of favored financial institutions who then use it to cover naked short selling. The investigation must include detailed vault audits and explore all paper trails.
 
Disclosure: Long on gold.
 
END
 
 
As everybody was aware the Group of 20 had their special meeting. The key events of the day were held in secret and we will not know what they have planned.
Goldbugs were alarmed that the IMF wished to sell gold to help the poor:
 

So the G-20 is asking the IMF for a proposal to sell Gold. I have a hard time believing this propaganda at face value. Gordon Brown has been asking the IMF to sell Gold since $300. The fact that the IMF would show up at the G-20 without a proposal to sell Gold is hard to believe. What makes more sense to me is they do not have access to the physical Gold they claim to have.

end

I can assure you that if the IMF wished to sell 400 tonnes which is about 12 billion dollars, China would line up front row and centre and purchase it lock stock and barrel.

I agree with Garic that these guys have been suggesting sales of gold to finance their desires, it seems unusual that they showed up to this conference without a proposal or anything firm.

I have stated to you on many occasions that the IMF does not have any allocated gold in their possession that which they could use to sell and finance third world countries.  Dimiss this as pure rubbish!!

 

However, what occurred at the summit can be summed up in this paragraph:
 

Despite all the hype about how the world is outraged at the Western banking system, and major countries want a new reserve currency, and we're in a global depression, somehow absolutely NONE of these issues were addressed at the G20 meeting, not even in the slightest.

From reading this article, it seems the only things decided on were to 1) sell IMF gold to help poor countries, and 2) "language should be tougher" regarding regulations to stop financial fraud.

That's it, that's all that occurred.

end
 
OK lets get back to the days events.
 
Gold fell by 17.70 as the cartel did not want gold to advance as the summit was underway.  However silver did close in positive territory up by 8 cents.
The OI for gold fell by 3400 contracts as gold fell yesterday.  Quite normal.  Silver's OI went up another 1500 contracts to 94500.   It looks like big developments are occurring on both the comex silver and comex gold front.
 
This being Thursday, we witnessed the jobless claims which comes out at 8 30 in the morning.  Here is the dismal news:

08:30 Jobless claims for w/e 28-Mar 669K vs. consensus 650K
Prior week revised to 657K from 652K. Continuing claims for w/e 21-Mar 5.728M vs. consensus 5.590M. Prior week revised to 5.567M from 5.560M. 
* * * * *

US jobless claims rise to 26-year high last week 

WASHINGTON, April 2 (Reuters) - The number of U.S. workers filing new claims for jobless benefits unexpectedly rose to its highest level in over 26 years last week and so-called continued claims jumped to a record high in March, according to data that underscored the labor market deterioration. 

The Labor Department said on Thursday initial claims for state unemployment insurance benefits rose 12,000 to a seasonally adjusted 669,000 in the week ended March 28, the highest since the week ending Oct. 2, 1982, from an upwardly revised 657,000 the week before. 

Analysts polled by Reuters had forecast 650,000 new claims versus a previously reported count of 652,000 the prior week. 

The number of people staying on the benefits roll after collecting an initial week of aid surged 161,000 to 5.73 million in the week ended March 21, the latest week for which the data is available, from 5.57 million the previous week. 

This was the highest on record and lifted the insured unemployment rate to 4.3 percent, the highest since a matching 4.3 percent in the week ending May 21, 1983. The insured unemployment rate was at 4.2 percent in the week ended March 14. 

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, climbed 6,500 to 656,750 in the week ending March 28, from 650,250. That was the highest reading since October 1982.

-END-

 
As I indicated above the FASB approved the relaxing of  the rules for asset markdowns. However the following report was later clarified.  Here is the original report.;
 

08:51 FASB votes to relax mark-to-market rules -- wires 
The move is as expected. 
* * * *

08:54 Follow-up: FASB votes to relax mark-to-market rules 
The new guidelines will give banks more flexibility on mark-to-market issues and allow banks to use "significant judgment" rather than the mark-to-market basis that has been the rule. Under the new rules, banks would be left free to determine their own value for securities, usually mortgage bonds, if illiquid markets fail to establish a realistic price for them. Note that an article in the WSJ yesterday said that the new accounting rules could potentially provide an incentive to banks not to sell into the Treasury Department’s PPIP as they wouldn’t have to mark certain inventories down to distressed market values; banks may be more willing to retain their toxic legacy assets under the new accounting rules. 
* * * * *

 
end
 
I affixed the clarification at the top of todays commentary.
 
The usa consumer is in big trouble as they are falling behind on their credit cards.  Please remember that the consumer is 70% of GDP in the usa:
 
U.S. consumer loan delinquencies soar to record 

NEW YORK, April 2 (Reuters) - More U.S. consumers have fallen behind on loan payments than ever before, and the problem may worsen as millions more find themselves out of a job, a study released Thursday shows. 

According to the American Bankers Association, which represents most large U.S. banks and credit card companies, the percentage of consumer loans at least 30 days late rose to a seasonally-adjusted 3.22 percent in the October-to-December period from 2.9 percent in the prior quarter. 

The ABA said the fourth-quarter rate was the highest since it began tracking the data in 1974, with delinquencies rising in nearly every category. It said these credit trends are unlikely to improve before 2010. Many consider the deep recession the worst since the Great Depression of the 1930s…
 
 
end.
 
The Conference Board issued this warning today:
 
 

US faces danger of 2nd recession in '10-Conf. Board 

NEW YORK, April 1 (Reuters) - Although the U.S. economy is expected return to growth later this year, there is a danger of a second recession if monetary easing and a weak dollar leads to increased inflation expectations, a report said on Wednesday. 

Massive stimulus spending and moves by the Federal Reserve to fuel economic activity is expected to jump-start the anemic U.S. economy in the last quarter of this year after it contracted 6.3 percent in fourth quarter of 2008. 

But the Fed's moves to boost the economy by slashing interest rates and buying up billions in government debt could have undesired consequences, The Conference Board, a private research group, said in the report. 

"If the United States experiences a too-rapid recovery, there may be a risk of another recession in 2010," said Bart van Ark, vice president and chief economist of The Conference Board. 

"It may fuel expectations for a return to inflation, adding to the uncertainty concerning the pattern and path of economic recovery," he said…

-END-

As I pointed out to you the next big financial blockbuster to knock the socks off the banks is the collapse of commerical real estate.  Today a report came out stating that defaults in this arena are escalating:

 

Commercial real estate loan defaults skyrocket

Defaults on loans for office buildings, shopping malls soar as economic picture worsens 

Alan Zibel, AP Real Estate Writer 
Thursday March 26, 2009, 5:46 pm EDT 

WASHINGTON (AP) -- With loan defaults rising, analysts say the struggling commercial real estate industry is poised to fall into the worst crisis since the last great property bust of the early 1990s.

Delinquency rates on loans for hotels, offices, retail and industrial buildings have risen sharply in recent months and are likely to soar through the end of 2010 as companies lay off workers, downsize or shut their doors.

The commercial real estate market's fortunes are tied closely to those of the sinking economy, especially unemployment, which hit 8.1 percent in February.

"Until jobs start coming back and industry starts doing better we don't see performance increasing" among landlords, said Christopher Stanley, an associate with research firm Reis Inc.

While the commercial real estate industry's woes led to the recession of nearly 20 years ago, this time the industry is "the victim of the economic and financial crisis," said Hessam Nadji, managing director at Marcus & Millichap Real Estate Investment Services in Walnut Creek, California.

Vacancies at retailers, Nadji forecasts, will shoot up to 11 percent by year-end, matching the peak of the early 1990s. Office vacancies are likely to hit 18 percent by year-end, he said, short of the 1990s-era peak of more than 20 percent.

The commercial real estate market is "at the precipice," a report by Detusche Bank said earlier this month. So far this year, delinquency rates are up to 1.8 percent of loans in March, more than four times the year-ago level.

Faring worst were retailers, office building owners and apartment buildings. Hotels and industrial properties posted more moderate increases.

Deutsche Bank's Richard Parkus projects delinquency rates will keep soaring to more than 3.5 percent by year-end and as high as 6 percent by late 2010. He says the industry's woes will be "at least of a similar magnitude as those that the commercial real estate faced in the early 1990s."

Drops in property values of 45 percent from a peak in late 2007 are possible, Parkus said, exceeding those of the early 1990s, as demand for office, retail and other commercial space plummets amid a worsening economy…

end.

 

The Dow today rose by 216 points as car sales were off less than expected.

We arenow entering the earning season and my bet it will be dismal again.  Expect the earnings of the entire S and P to be no more than 10.00-15.00 dollars.

The stock market will then resume its downward trajectory.

 

See you on the weekend

 

harvey.

 

 

 

 

 

 

 

 

 

 

Wednesday, April 1, 2009

federal debt...

 
They have just released the new figures for the federal debt for the end of March.  The Federal debt is now at 11.126 trillion.  Yesterday it was 11.046 trillion for a gain of  80 billlion in a day.
They are 174 billion dollars away from the debt ceiling.

april 1. 09 commentary.

 
Good evening Ladies and Gentlemen:
 
Gold closed up by 1.90 to 925.10.  Silver closed down by 3 cents.  The open interest on gold comex  fell by  3000 contracts as some longs liquidated instead of taking delivery.  Judging from the events of today, I would bet that they were sorry that they didn't go  for delivery. 

The silver OI  rose a large 1500 contracts as longs refused to budge.
 
Over at the comex delivery pits an astonishing 1,038,000 oz of gold was delivered upon on the first day.  There still remains an additional 7000 contracts to go.  The volume on the April contract today was in excess of 7000 contracts. 
 
It looks to me that  1,700,000 oz of gold will eventually stand.   Here is what Adrian Douglas  comments on the gold deliveries:
 

http://www.cmegroup.com/trading/energy-metals/files/delivery.pdfThe Gold COMEX delivery notices for April have blown out!! They stand at 10,308 contracts which is 1030800 ozs and that represents 36% of the registered gold inventory. This is absolutely stunning and the April contract month has only just begun. In silver there are 137 contract delivery notices which is only 685,000ozs.
Cheers
Adrian.

 

end.  (comex)

 

In other news, the ECB made two announcements today.  I will list both announcements and give my 2 cents worth:

The ECB’s weekly statement of condition indicates that "gold and gold receivables" fell E82 Mm last week: 4.15 tonnes at the present book value. This "reflected" the sale of gold by one "Eurosystem central bank… and the purchase of gold by another". This is the third time in four weeks that this form of language has been used. It is quite distinct from what is said when a coin program is under way: it looks very much as if a CB has broken ranks and is buying for FX reserve purposes. This could be an important precedent. (Last week two CBs were reported to have sold 0.65 tonnes in total.)  end

and  now for Announcement No 2:

 

A curt announcement from the ECB today reports:

"On 31 March 2009, the European Central Bank (ECB) has completed gold sales amounting to 35.5 tonnes of gold."

end

 

For the past 4 weeks we have seen one captive bank at the ECB differ from the rest of the pack and buy gold.  For several weeks, Germany has bought gold for coinage.  I strongly think that they are the lone bank purchasing gold with surplus euros.

 

And now for the second announcement:  35.5 tonnes of gold.  The announcement also stated that the sale was at 920.00 usa . In oz the total sale by the ECB was 1.1 million oz at 920.00 or appprox 100 million usa dollars.

 

Strangely the comex delivered 1,030,000 oz of gold today.  It looks like the Germans were called upon to help the comex.  Evan Bryant noticed today that Deutsche Bank did most of the delivery of gold.  This is most unusual for them.

This is our reliable Bryant's interpretation of todays events:

Yesterday was 1st delivery day for the April contact of COMEX gold. Total deliveries were 8,867 contracts. The interesting detail is that 8,500 of the deliveries were made by the Deutsche Bank. This is 850,000 ounces of gold which is a significant number. In a free market, I can’t see why the German bank would deliver such a large round number of contracts. Could Obama have brokered a deal with Merkel in which Germany delivers gold to the COMEX and the USA does something for Germany instead? Could this be another swap of Treasury gold for German gold, which GATA suspects happened previously with our West Point gold? If either of these reasons are correct, it means that not only is the government the seller of last resort on COMEX, but that they are also practically the only seller. The biggest buyer was JP Morgan with 351,200 ounces of gold bought followed by The Bank of Nova Scotia with 284,100 ounces bought. Regards,
Bryant.

In other economic news:

08:15 Mar ADP Employment (742K) vs. consensus (663K)
Feb figure was (697K). 
* * * * *

US private sector axes 742,000 jobs in March -report 

NEW YORK, April 1 (Reuters) - U.S. private sector job losses accelerated in March, more than economists' expectations, according to a report by ADP Employer Services on Wednesday. 

ADP said private employers cut 742,000 jobs in March versus a 706,000 revised cut in February that was originally reported at 697,000 jobs. 

Economists had expected 655,000 private-sector job cuts in March, according to a recent Reuters poll.

end

The ADP is a private analysis on the jobs sector and they generally report on the Wednesday preceeding the Government jobs report.  The independent  ADP job loss came in  at 742000.

So on Friday expect another big loss from the official BLS.

The planned job cuts came in lower than expected but higher for the quarter:

 

7:31 Challenger reports Mar job cuts (19.3%) to 150.4K vs. Feb 186.35K
Job cuts for Mar were lowest since Oct-08. 
* * * *

U.S. planned layoffs down in March but up for quarter 

NEW YORK, April 1 (Reuters) - Planned layoffs at U.S. firms fell in March to their lowest in six months, but quarterly job losses are at the highest in more than seven years as the U.S. recession continues to take a toll on employment, a report showed on Wednesday. 

Scheduled job losses fell 19.3 percent in March to 150,411, the lowest since October, but the more than 578,000 cuts so far in 2009 are the most for any quarter since the last one of 2001, outplacement company Challenger, Gray & Christmas said in a monthly report. 

"The good news is that job cuts appear to be stabilizing in the financial sector," said John A. Challenger, chief executive officer of Challenger, Gray & Christmas, about the relatively low 8,651 job cuts in that sector in March. 

"Unfortunately, other sectors are seeing an increase in cuts as the recession works its way through the economy. State and local governments across the country are struggling with falling tax revenues as more and more people lose their jobs and homes."… 

Reuters expects huge job losses to continue:  Here is their newspaper report on this matter:

 

Big US job loss to continue-Macroeconomic Advisers 
NEW YORK, April 1 (Reuters) - The U.S. labor market will experience severe contraction and "serious job bleeding" for at least several more months, Joel Prakken, chairman of Macroeconomic Advisers, said on Wednesday. 

Earlier, the ADP National Employment Report, which was jointly developed by Prakken's economic research firm and ADP Employer Services, showed U.S. private employers axed a staggering 742,000 jobs in March, nearly 100,000 more than what analysts had forecast. 

Prakken said in a teleconference with reporters he expected "serious (job) bleeding" to be similar to that in March for the "next several months." 

In response to a question, he said the U.S. unemployment rate will rise to 9.5 percent by mid-2010, above the 8.1 percent reported for February. 

"There are no companies which have been untouched," Prakken said. 

While the government's massive stimulus program could save up to 2.5 million jobs and contribute 2.5 percentage points to GDP, it will not create new jobs, Prakken said. "It will just get us back to full employment faster," he added. 

Not all the day's jobs news was horrid. 

U.S. companies planned to layoff 150,411 workers in March, the fewest since October, according to outplacement firm Challenger, Gray & Christmas said earlier Wednesday

-END-

Mortgage rates have lowered due to quantitative easing (QE).  Thus we are witnesssing greater mortgage applications as investors try and pick off properties at dirt cheap prices:

US mortgage applications climb, rates at fresh low 

NEW YORK, April 1 (Reuters) - U.S. mortgage rates set fresh record lows last week, fostering demand for refinancing that drove home loan applications to the highest level since mid-January, data from the Mortgage Bankers Association showed on Wednesday. 

The pace of the rise ebbed from the prior three weeks, when homeowners in droves raced to refinance as average 30-year mortgage rates sank by a half percentage point. Last week, however, the rate dipped by just 0.02 point to 4.61 percent. 

All eyes are on the housing market to see how soon a spate of government interventions stabilizes the deepest slump since the Great Depression, and thus energizes the U.S. economy…

end

 

Two new figures released today show manufacturing still in the dumpster:  The ISM manufacturing index came in at 36.3 vs consensus 36.  Feb was 35.8 so it was a slight improvement but not much.  Any figure less than 50 is contraction. Also construction continues to falter down a full .9%,  Here is the report for you to peruse:

10:00 Mar ISM Manufacturing 36.3 vs. consensus 36.0
Feb figure was 35.8. Prices Paid 31.0 vs. consensus 33.0. Feb figure was 29.0. 
10:00 Feb Construction Spending (0.9%) vs. consensus (1.9%)
Jan figure was revised to (3.5%) from (3.3%). lets go on.

Early in the session they released pending home sales and they caught the market by surprise:

10:01 Feb Pending Home Sales 2.1% vs. consensus 0.0%
Jan figure was (7.7%). 

The stock market took off with this surprising news.  However late in the day, the market did not like this:'

02:56 Missed mortgage payments adding another woe to Fannie Mae (FNM), Freddie Mac (FRE) performance - WSJ
Borrowers skipping payments are shooting up: Fannie said this week that 2.77% of the single-family loans held in its $785 billion investment portfolio were delinquent in January, up a record 35 basis points m/m, and more than twice the year-ago 1.06%. Freddie's delinquency rate is 2.13%. A research firm expects the rate to climb to 4%, meaning $28B in losses for Freddie.
Reference Link (subscription required) 
* * * * *

However they were encouraged by better than expected news on the auto front:

GM, Toyota, Ford Post U.S. Sales Declines Less Than Estimates

April 1 (Bloomberg) -- General Motors Corp. and Toyota Motor Corp. led the biggest automakers in the U.S. in posting smaller March sales declines than analysts estimated as spending on incentives rose to a record.Enough buyers trickled back to showrooms to keep GM, Toyota, Ford Motor Co., Chrysler LLC,Honda Motor Co. and Nissan Motor Co. from matching projections for bigger decreases in a month in which job losses increased and consumer confidence remained low…

http://bloomberg.com/apps/news?
pid=20601087&sid=aqVpufeczO6s&refer=home

Early in the session, Bloomberg greeted the street with the bankruptcy of the large Thornburg Mortgage company.  These guys are the largest in the jumbo loans to wealthy individuals.  The mortgages are greater than 417000. 

We have now seen, the bankruptcy of Indy Mac and now the no 3  Thornburg.

 The number 1 is  Countrywide and they are owned by Bank of America.  I do not have to state anything else on this matter.

 

Tomorrow is the group of 20 meeting.  Expect fireworks after the meeting.

 

Got to go

speak to you tomorrow.

Harvey.

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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