Saturday, April 25, 2009

april 25.09 commentary.

Many have not read the Cuomo letter to Congress.  I urge you all to read this:
 

 

http://zerohedge.blogspot.com/2009/04/cuomo-letter-exposing-paulsons-and.html.

 

On or about Dec 21.09 Ken Lewis wished to invoke the MAC and thus not pursue the takeover of Merill Lynch, but was immediately blackmailed by Paulson who threatened to remove all the board of Bank of America if they did not complete the takeover.  Ken Lewis  writes back to the board explaining the days events much to his horror.

They had received TARP money and I guess government had that power to remove the board.  Lewis then decided to save his job and all his board of directors and sacrifice shareholders.  Lewis and his board hid from his shareholders the true state of affairs of Merrill Lynch. The shareholders voted for the takeover as knowledge of the deteriorating conditions within Merrill were not disclosed.  Not only that but Merrill Lynch executives also decided to give themselves huge bonuses despite their massive losses.Such good sports!!

 

You will now see massive lawsuits against the company and Government and quite possibly fraud charges!.  Paulson  and Bernanke will get immunity from prosecution.  These actions will bring down Bank of America and trigger derivative losses.  There is one individual, a Mr Fingers, whose family has 1.5 million shares. This man is orchestrating class action and criminal suits against all directors of the firm.

On Lemetropolecafe cafe website, you will also see an article by John Crudele who writes for the NY Times.  he writes that there are 20 criminal investigations underway due to the TARP money and its unknown destinations. Here is the link: (the most important section is the second to last paragraph)

 

 

 

 

 

 

 

PLUNGE PROTECTION TEAM SEEMS TO BE MISSING

JOHN CRUDELE

NEW YORK POST

April 23, 2009

PLEASE help me find the President's Working Group on Financial Markets.

The Working Group, which is also affectionately known as the "Plunge Protection Team," was a favorite of former Treasury Secretary Hank Paulson. If you Google the name "President's Working Group" and "Paulson," you get no fewer than 145,000 citations.

The Working Group was Paulson's go-to team.

Last March 13, for instance, Paulson said the PWG wanted more regulatory oversight of mortgage lenders -- proving, I suppose, that it's never too late to close the barn door even after the last pig has exited.

In October, the PWG issued a 28-page report about reforming the financial system. Around the same time, the PWG -- sounding awfully like Paulson -- issued a statement saying the Federal Reserve was "committed to using all tools necessary" to make sure the US banking system had enough liquidity.

You get the idea: There wasn't a banking-system crisis last year that the PWG didn't have a hand in.

Now? The group appears to be gone, seemingly missing in action.

Send out the searchers!

Tim Geithner never brings up the PWG, even though he was part of it last year as head of the New York Federal Reserve Bank.

And nobody at Treasury, where the group is technically domiciled, seems to have a phone number for the PWG.

Two numbers given to me by the Treasury operator were outside teleconferencing services. And a couple of times, I was transferred to something called the Office of Financial Stability.

That could be the new name for the President's Working Group, but I couldn't tell because the press contacts -- President Barack Obama's people -- had never heard of it.

Just for the record, the nickname Plunge Protection Team came about because the PWG is suspected of being the organization that was in charge of stepping in front of a cascading stock market.

It was founded in the late 1980s under presidential order of Ronald Reaganwith a conveniently ambiguous purpose.

My advice to the Obama administration: Get the keys to the PWG's office and learn some of the stealth intervention the group seems to have practiced.

(A footnote: Several times I've asked for documents belonging to the PWG under the Freedom of Information Act. I guess the disappearance of this organization from the Treasury phone system means my odds of getting these secret papers just got reduced considerably.)

*

Another waste of taxpayers' bailout money?

Here's a tip I got from an anonymous reader this week about a company I believe to be Citigroup.

John: I thought you would like to know that a major bank with a one letter [ticker] symbol is offering traders a percentage increase on their profit/loss as people are trying to hire them away. Almost twice as much percent profit.

But the worse part is they are offering to move traders from different countries and give them ex-pat packages paying for all rent up to $6,000 a month. Two business class [airline] tickets and $30,000 in moving costs.

This is what they are doing with taxpayers money.

Citigroup is the only bank whose stock trades under a one-let ter symbol. It's the let ter "C."

A spokeswoman for Citi said it was a "totally false, baseless rumor."

*

In my March 31 column I mentioned that banks that received funds under the government's Troubled Asset Relief Program were getting nervous because the Treasury's special inspector general, Neil Barofsky, was asking them to give a "narrative" of where the money was going.

I said in that column that the banks were starting to hire criminal defense lawyers because, ya know, their executives don't want to go to jail.

This week Barofsky told Congress in a report that there were "almost 20" criminal investigations going on related to the $700 billion TARP program.

*

Back in February I had an expert look at the nation's financial system and I wrote in this column that three or four big banks were in serious financial trouble.

So it wasn't a surprise when Geithner told Congress this week that the "vast majority" of US banks are in good shape.

The government may -- or may not -- release the so-called stress tests it recently did on banks.

But the problem is this: Banks are playing fast and loose with their accounting and investors are having a hard time believing anything that comes out of the financial sector of the economy.

This can lead to horrible things. john.crudele@nypost.com


 

OK lets go to yesterdays events:

 

Gold closed up by 7.00 to 913.00.  Silver rose to 12.92 up by 7 cents.  The open interest on the gold comex rose significantly up by 8200 contracts.  Even the silver  OI continues to rise up by

1334 contracts to 97000.  The bank shorters are now feeling the heat.

 

The big event of the day and a very significant one is the announcement that China has officially increased its reserves from 600 tonnes to 1054 tonnes as of April 24.09.

 

First, the announcement:

 

China gold reserves apparently doubled

HONG KONG (MarketWatch) -- China has added to its gold reserves and now holds 1,054 metric tons of the yellow metal, according to a Friday report by the Xinhua News Agency, which cited comment by Hu Xiaolian, head of the State Administration of Foreign Exchange.

Hu said that China's gold reserves had risen by 454 metric tons since 2003 and that the total was being reported to the International Monetary Fund as per the organization's rules.

A Dow Jones Newswire report said the figure cited was nearly double China's reported gold reserves as of the end of last month, but noted that it wasn't clear which gold reserves Hu was referring to.

She said China's gold reserves now rank fifth in the world among nations which publicly disclose their holdings.

Analysts said China bullion buying reflects efforts to diversify their nearly $2 trillion stockpile of foreign exchange reserves.

"Chinese officials have been increasingly vocal about their concern on the U.S. dollar and the U.S. bailout policies of late, and have actively been seeking to diversify into other assets, especially commodities," said Martin Hennecke, an associate director with Tyche Group in Hong Kong…

-END-

I have telling you all along that China has been accumulating gold.  If China announced that they increased 454 tonnes in 6 years, it is my bet that they have accumulated over 800 tonnes to hold 1400-1600 tonnes of gold. It is not in China's interest to tell the truth of their gold holdings. They are on record that they wish to hold 5000 tonnes of official gold reserves!!

 

China's mining boom started slowly in 2003 where they mined 100 tonnes of gold.  Almost all of this gold went to start China in their jewellry demand.  From 2004 to 20007 China mined approximately 120 tonnes of gold each year which fed its fledging gold retail market. In 2008-2009, they increased their tonnage of gold to 280 tonnes.  Probably 140 tonnes of that went to the jewellry business and 140 tonnes to reserves.  China exports zero gold.

 

We can assume that China has bought at the very least, 454 tonnes minus 140 tonnes or 214 tonnes of gold on the open market or about 18 tonnes per month.  We have seen Russia report purchases of 13 tonnes of gold per month. ( Ecuador and Venezuela central banks have also purchased large supplies of gold).

 

The world gold council now has a severe problem.  They balanced demand and supply and now this 454  tonnes came out of nowhere.  Since the newly minted gold is constant and known at around 2400-2600 tonnes per year, the added demand from China must be balanced with a supplier of that gold.

 

 We see demand for gold rise as evidenced by the huge rise in the gold ETF GLD.  They have increased their 'inventory' from zero in 2004  to 1127 tonnes now.(I am not convinced that they have this inventory)  Yet the world gold council still lists all the countries with their gold. As of Thursday, the WGC lists all the world and the IMF with 29,600 tonnes of gold as reserves.

What country or what countries have supplied this tonnage of gold to the GLD, China, Ecuador , Venezuela and Russia? The supply/demand equation is now full of holes!!

 

The following is Bill Murphy's understatement as to the significance of the announcement:

To say that this revelation is a big deal is an understatement … for a number of reasons…

*It is more evidence that various central banks are increasing their gold holdings, in contrast to a number of western banks which have been selling for more than a decade.

*China’s move debunks Planet Wall Street and other western central bankers that gold is a barren asset and not worth owning.

*And it enhances the notion that gold is a valuable reserve which will encourage other central banks to follow China’s lead.

*It surely will spook some of the sheeple central bankers who have foolishly dumped their country’s gold reserves at bargain basement prices … especially at a time when the West is looking at one financial crisis after another and the world’s major currency reserve, the dollar, is looking very suspect. A number of them are unlikely to press for further bullion sales from their countries’ reduced reserves.

*The likelihood of China continuing to build its reserves is extremely high. They were secretly building their gold reserves BEFORE the latest financial crises. If this was the Chinese mindset then, what must it be now? As is, their percentage of gold reserves is still on the very low side.

*Because of what the US is doing with our bailouts and fiscal deficits, the US dollar is surely on a precipice, thus China must be looking to accumulate more gold. Therefore, this is not a sell the newsmarket announcement. It is just the opposite. It is a clarion call to buy physical gold.

*That clarion call will not go unheeded by the sophisticated big money in the world.

*This is a major new headache for The Gold Cartel.

 

end.

Please remember that the bullion banks are short somewhere around 16000-20,000 tonnes of gold.  Now that China has gold on its shores this gold will never come back. These bullion banks have a big headache.

You now have countries not favourable to the usa gobbling up any gold offerings. It will now be very difficult for cartel members to bomb paper gold if they suspect that China and or other countries will buy all that they offer and convert that paper into real gold.

Yesterday, the dollar tanked but also the bonds fell badly.  Usually that is a harbinger of trouble.

The long bond fell to 124.62.  A drop to around 116 will break JPMorgan.

Lets go to other news of the day:

 

The usa released details on the stress tests.  They indicated that the banks need around 1 trillion dollars of new capital.

I thought that the banks had good income in the lst quarter and they were on their way to recovery.

 

Here is the report:

Top U.S. banks must hold sizable capital buffer: Fed 

WASHINGTON (Reuters) - The top 19 U.S. banks need to hold a "substantial" amount of capital above regulatory requirements to weather a potential worsening of the economic recession, the U.S. Federal Reserve said on Friday. 

Supervisors said "stress tests" regulators conducted at major banks were aimed at ensuring the institutions have enough capital in reserve to continue to lend in potentially bleaker conditions, and are not to be considered a measure of banks' current solvency. 

"It is important to recognize that the assessment is a 'what if?' exercise intended to help supervisors gauge the extent of capital needs across a range of potential economic outcomes," the Fed said in a white paper outlining the methodologies regulators employed.

-END-

Here is the opening paragraph of the white paper on the stress tests released by the Fed:

14:05 Fed releases white paper regarding stress tests
The following is the opening paragraph from the white paper, which is available via the Fed link attached: 
"Most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized. However, losses associated with the deepening recession and financial market turmoil have substantially reduced the capital of some banks. Lower overall levels of capital—especially common equity—along with the uncertain economic environment have eroded public confidence in the amount and quality of capital held by some firms, which is impairing the ability of the banking system overall to perform its critical role of credit intermediation. Given the heightened uncertainty around the future course of the U.S. economy and potential losses in the banking system, supervisors believe it prudent for large bank holding companies (BHCs) to hold additional capital to provide a buffer against higher losses than generally expected, and still remain sufficiently capitalized at over the next two years and able to lend to creditworthy borrowers should such losses materialize." 
Reference Link 

 

end.

 

Home prices continue to fall.  This is the security that banks hold and this security is dropping like a stone:

U.S. home sales drop in March 

WASHINGTON (Reuters) - Sales of newly built U.S. single-family homes dropped 0.6 percent in March, but the stock of homes for sale at the end of the month still plummeted at a record pace, Commerce Department data showed on Friday. 

The inventory of new homes shrank in March, to 311,000 from 328,000 in February. That left the supply of homes available for sale at 10.7 months' worth, compared to February's 11.2 months. 

The Commerce Department said that the monthly change in inventories, of 5.2 percent, was the largest drop in more than 45 years and the year-on-year plunge of 33.7 percent was the largest on record. 

February sales were much stronger than originally thought, with the report showing they rose 8.2 percent, compared to the 4.7 percent gain previously reported. 

The March drop brought home sales to a 356,000 annual pace. Analysts polled by Reuters had forecast sales at 340,000. 

The median sales price for a new home fell to $201,400 from $208,700 in February. The average price, however, rose slightly to $258,000 from $255,100.

end.

Ed Hadas writes:

 

The worst may be yet to come

Is the worst over? Investors seem to think it is. Confidence that the crisis is winding down has been mounting.But the right answer to the question depends on what "worst" is meant. Appropriate replies include: probably, yes but so what, not yet, probably not, and let's hope so.

By Edward Hadas, breakingviews.com
Last Updated: 3:28PM BST 22 Apr 2009

The worst of the credit squeeze is probably over. True, loan losses are still increasing. But the official aid is massive: minimal policy interest rates, ample liquidity supplies, capital injections and implicit loan guarantees. 

The aid from above has helped push dollar interbank borrowing rates down in the last six weeks. The cost of insuring against corporate failure in the credit default swap market has also fallen by 0.5-0.7 percentage points to about 1.9 and 1.6 percent annually for the main US and European investment grade CDS indexes. Improving bank credit has contributed to this trend. Better credit all round means more loans will be refinanced, so fewer companies will go under than would otherwise be the case. 

The big official liquidity push also gives investors more cash to put into the markets. The additional buying power may account for some of the sharp increase in oil and equity prices. There have also been tentative signs of revival in the junk bond and IPO markets. To some extent, the mood is following the money. 

It may be due to government help or it may just be the passage of time, but another worst that has probably passed is in the pace of economic decline. The huge sudden drop in activity after the collapse of Lehman Brothers last September has already become something of a business legend. If the decline had continued at that pace, economies would be back to the Stone Age in a few decades. 

It's not going to be that bad. Globally, exports are down 30pc since last July, according to Lombard Street Research. But the pace of decline is moderating. Similarly, US housing starts, which have declined by 75pc since the 2006 peak, may have reached their low. 

The balance of indicators still suggests GDP is falling in most developed economies, but at a much less dramatic rate than a few months ago. When the economy is only declining at a moderate pace, some measures typically suggest that growth is returning - the much talked-about "green shoots" - but more show further decline. That seems to the case now. 

Inventories complicate the picture. A sharp decline in global demand led to an even sharper reduction of inventories as retailers and manufacturers cut back. As the inventories are rebuilt, production will most likely pick up faster than consumption. 

So yes, all in all the economy isn't shrinking as rapidly as it was. But so what? It's still shrinking. On that yardstick, therefore, the worst isn't yet over. 

Now look at another measure of "worst": unemployment. Even when growth does return, recovery is likely to be anaemic. It will take time to absorb the excesses built up during the credit boom, from houses in the US to too many Chinese factories making cheap goods. 

What's more, it's not as if all that private-sector debt has gone away. 

The rise in savings rates in the US and elsewhere isn't going to be a one-quarter wonder. This means that the peak in unemployment could easily be two years away. 

And will that then be the end of the pain? Probably not. The crisis will leave government balance sheets shot to pieces. The best case scenario is that the authorities manage to suck all their fiscal and monetary stimulus out of the economy safely once economic growth has bottomed out. Then all that the world will suffer is high taxes and slow growth. 

But there is a risk that this outcome proves too unpopular and that the authorities instead take the current fad for "quantitative easing" to the extreme - and just print money to finance their deficits. The outcome would then be inflation. 

An inflationary outburst might even lead to another sort of financial crisis - a loss of confidence in key currencies. That could be worse than anything seen up to now. 

Can such a dire outcome be avoided? Let's hope so.

-END-

We have seen the Federal Debt remain at 11.19 trillion dollars despite the tax recenue receipts.  This does not bode well by the government.  They are in need of 3.8 billion dollars per day.

The usa budget originally called for spending of 3.6 trillion dollars.  With the economy slumping and with the newly added expenditures of unemployment benefits, it looks like spending is heading for 3.9 trillion dollars.

 

Tax receipts etc are heading for a figure below 2 trillion dollars.  Lets say it settles at 1.8 trillion.   This will result in a deficit of 2.1 trillion dollars.

Then we must add the new stimulus bill of 1 trillion dollars.

 

China is cashing in their dollars to purchase gold and other commodities.  Expect another 1 trillion of foreign debt to be cashed in.  The usa must finance 4 trillion dollars of debt with nobody to buy this debt.

The only buyer is the government and yet with all this QE we see bond yields rising!!.

 

The usa is in serious trouble.

 

Have a great weekend

Harvey.

 

 

 

 

Thursday, April 23, 2009

april 23.09 commentary.

 
Last night, I sent down the Wednesday April 22.09 commentary but somehow it got lost in cyberspace along with some of my other emails.
 
I did not keep a copy but I will highlight the most important parts.
 
The first was the release of Wells Fargo earnings.  The company announced a 3.0 billion dollar income on "strong mortgage " performance and excellent trading performance.
 
However on closer examination, it was revealed that they revalued higher their toxic waste and thus booked a 5 billion profit from the relaxed FASB rules.
 
This is outright fraud as this is the 4th bank to report earnings and all 4 have juiced their incomes.
 
The second big news came from the Associated Press who confirmed that they also have a copy of the Stress tests and they confimr the Turner Radio report.
 
I also reported that we are coming very close to backwardation in gold with a differential of only 60 cents from the April to June gold.
 
OK lets go to today and today is a blockbuster:
 
Gold closed up by 14.20 to 906.40.  Silver fared better on a percentage basis rising by 48 cents to 12.80, The open interest at gold comex fell by 2800 contracts as the shorts are beginning to cover.
 
In silver the OI dropped by 500 contracts.
 
 
OK lets go to the economic news of the day. 
 
 

08:30 Jobless claims for w/e 18-Apr 640K vs. consensus 640K
Prior week revised to 613K from 610K. Continuing claims for w/e 11-Apr 6.137M vs. consensus 6.120M. Prior week revised to 6.044M from 6.022M. 
* * * * *

US jobless claims up to 640,000,bit above forecast 

WASHINGTON, April 23 (Reuters) - The number of U.S. workers filing new claims for jobless benefits rose by a slightly more than forecast 27,000 last week, government data showed on Thursday, while continued claims posted a record high again as the recession bit. 

Initial claims for state unemployment insurance benefits increased to a seasonally adjusted 640,000 in the week ended April 18 from a revised 613,000 the prior week, the Labor Department said. 

Analysts polled by Reuters had forecast 635,000 new claims versus a previously reported count of 610,000 the week before. 

end.

 

the data speaks for itself..the economy continues to contract with many layoff workers.  This causes less and less income to the treasury.

Reuters brings this story on the layoffs:

U.S. mass layoffs rise to highest on record 

NEW YORK (Reuters) - Large-scale U.S. layoffs rose again in March, according to Labor Department data on Thursday, as the economy struggles with what many expect will be the country's worst post-World War II recession. 

Last month witnessed 2,933 more mass layoffs, defined as affecting 50 or more workers, than February. This brought the total number of people who lost their jobs in this manner to 299,388, the highest on a record that dates back to 1995. 

The U.S. job market has been under severe strain as a crisis first evident in housing spread to the rest of the economy, severely curtailing corporate profits and consumer spending. 

Ongoing pain was evident across sectors, with the Labor Department also reporting another record for blanket layoffs within manufacturing. 

Mass layoffs now total 31,414 since the start of the recession in December 2007, resulting in the loss of more than 3.2 million jobs. The monthly mass layoff numbers are compiled from establishments with at least 50 initial claims for unemployment insurance filed against them during a five-week period. 

Separate data out on Thursday showed the number of continuing unemployment claims climbing to a new record of 6.14 million. Weekly initial jobless claims also rose again, to 640,000. 

"Over the past year, the deterioration in initial claims, continuing claims, and the insured jobless rate has been just as bad as they were during the 1981-1982 recession, which has been the most severe in the post-World War II period," said Steven Wood, chief economist at Insight Economics.

-END-

Existing home sales were off again last month.  Here is todays report released at 8 30 this morning:

 

U.S. existing home sales fell 3.0 pct in March 

WASHINGTON, April 23 (Reuters) - The pace of sales of existing homes in the United States fell 3.0 percent in March to a much lower-than-expected annual rate of 4.57 million units, the National Association of Realtors said on Thursday. 

Economists polled by Reuters had forecast home resales to slip to a 4.70 million-unit pace from a revised 4.71 million for February, which was initially reported as 4.72 million. 

The inventory of existing homes for sale fell to 3.74 million from the 3.80 million overstock reported for February. The median national home price rose 4.2 percent to $175,200 from February, boosted by seasonal factors. However, prices fell 12.4 percent compared to the same period a year ago.

end.

 

I reported yesterday that General Motors has defaulted on the June 1 09 payment  ie.  it has told Wall Street that it will not pay the 1 billion in bond interest and thus by definition it has defaulted.

 

This is Bill Holters commentary on the GM fiasco:

General Motors proposal to exchange $1 billion in unsecured bonds into common stock is desperation squared. If the company cannot pay its bonds, does anyone really expect that their stock is going to be worth anything. After a bond default like that no one would be stupid enough to lend to them again except maybe the government. My guess is that this proposed swap has little to do with staying in business for long, but is an attempt by the derivative writers to avoid paying much more in credit default swaps. If the owners of those $1 billion in bonds were smart, they have already bought the swaps and stand to make more money from a default than without it. Looks like we have 39 days until GM goes nuclear and delivers another death blow to the banks and economy. What about all of GM’s part suppliers? Are they going to get paid for deliveries? They are probably requiring prepayment or payment upon delivery at this point.

end.

 

I commented on this as well during the week and again last night.  Bryant echoed the fact that the Treasury has received tiny amts of tax revenue and thus the Federal Debt rose during this week instead of falling:

The Federal Government is now spending about double what they are collecting in taxes. The Federal debt is now $11,193,459,542,379.92 and has risen $1,169 billion since the fiscal year started 10/1/08. For the week of April 14, 2009 thru April 21, 2009 the Federal debt increased $21 billion. The corresponding period in 2008 saw a drop in the debt of $89 billion. Needless to say, if they government is losing money during the week of April 15 tax collections, they are in big trouble. This is like having the municipal water level at the Houston reservoirs drop during a category 3 hurricane. Regards,
Bryant

 

end.

 

 

The most important event of the day came with the Letter of the Attorney General of NY to the Regulators.  First the news:

WSJ: BofA CEO says was told to be quiet on Merrill

WSJ: BofA CEO Lewis testifies to NY AG that Bernanke, Paulson wanted Merrill losses kept quiet

  • Thursday April 23, 2009, 10:33 am EDT

NEW YORK (AP) -- Bank of America Chief Executive Kenneth Lewis told the New York attorney general he believed former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke wanted him to keep quiet about the worsening terms of the bank's acquisition of Merrill Lynch, according to testimony reviewed by The Wall Street Journal.

Related Quotes

Symbol Price Change
BAC 8.82 +0.56
Chart for BK OF AMERICA CP

The New York AG's office plans to release the testimony on Thursday to federal regulators and overseers of bailout funds and banks, the newspaper reported after reviewing a transcript.

"We believe we acted legally and appropriately with regard to the Merrill Lynch transaction," Bank of America spokesman Scott Silvestri told The Associated Press Thursday.

He declined further comment about the report.

Lewis testified in February to New York Attorney General Andrew Cuomo's office, which has been trying to determine if Merrill and Charlotte, N.C.-based Bank of America failed to provide adequate disclosures to shareholders about the more than $15 billion in losses Merrill incurred in the 2008 fourth quarter and hefty bonus payments. Had they had that information, BofA shareholders might have voted down the deal.

The Journal said in Thursday's edition that Lewis doesn't say in the transcript that he was told specifically to remain silent about Merrill's burgeoning losses. But the paper quotes Lewis as testifying that disclosing that information "wasn't up to me," and that he was warned by Paulson and Bernanke that failing to complete Merrill's takeover would "impose a big risk to the financial system."

Citing a person familiar with the matter, the newspaper said Paulson told the NY AG's office last month that Lewis may have misread some remarks about Treasury's disclosure requirements as instead pertaining to his bank's obligations.

The government helped orchestrate the acquisition of Merrill by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under and insurer AIG received its initial government support. Both the government and Wall Street were under substantial pressure to contain the financial meltdown.

Bank of America had received $25 billion in federal bailout funds, but was later given an additional $20 billion as Lewis showed trepidation about completing Merrill's purchase and said the bank needed help offsetting the losses it was absorbing from the troubled brokerage.

Just a few weeks after the deal was completed, Bank of America's earnings report showed the major hit its balance sheet would take on the Merrill transaction, quickly making Lewis the target of much shareholder fury.

Two of the nation's largest state pension funds are seeking to lead a class action lawsuit against Bank of America, alleging the bank's management "misstated or omitted" important information about Merrill's financial health before the deal was completed.

And Finger Interests Number One Ltd., which owns about one-fifth of one percent of Bank of America stock, is asking shareholders to vote against re-electing Lewis as well as lead director O. Temple Sloan and Jackie Ward during the bank's annual meeting April 29.

Bank of America warned of worsening loan default problems this week even as it posted a first-quarter profit of $2.81 billion. The amount of its problem loans more than tripled to $25.7 billion and Lewis said he couldn't predict when the bank's credit morass would end.

end.

Bill Holter:

 

Bill H:

Blackmail?

To all, so today we hear that Ken Lewis, CEO of Bank of America was told by Ben Bernanke and Hank Paulson to shut up about the "material adverse change" that took place at Merrill Lynch before their merger. I would call this "blackmail", but then again, who am I anyway, I think Gold is money so I must be a whacko. Mr. Lewis has testified under oath (whatever that means) that he was told to remain silent about Merrill, otherwise his board of directors would be disbanded and the management team would be fired. Appalling yes, but does this surprise you?

What would you do? Remain silent? Cancel the deal? I know what I would have done, I would announce the piece of crap Merrill had become, cancel the deal so my shareholders didn't get left holding the "bag of pooh", and then simply resign. How could you wake up and go to work in the morning knowing you just shafted your shareholders over a blackmail? How could you remain silent? Was his silence going to save the system? No, it can't be saved because "it is what it is", the debt, derivatives, mal investment, etc., were all already in place, NOTHING could reverse that. If the system was so close to collapsing just a few months ago, how far away can we be now?

So, as for Mr. Bank of America, either he is a spineless buffoon that threw his shareholders under a steamroller, or he lacks the moral values to tell the truth no matter what the consequences, even if they included losing your job. Maybe he was afraid of becoming Mr. "Freddie Mac" and turning up as a suicide. Who knows? The point here is the confidence (lack of) this instills in foreigners with investments in the U.S.

Supposing Mr. Lewis is telling the truth, this means that Paulson and Bernanke are both "blackmailers" and liars. They told us umpteen times that the "banking system is solid", the "system is sound". WHO to believe? I think they are ALL full of $#I+!!! The system is busted, the banks are broke, the Dollar has ZERO intrinsic value, and the Treasury has become the biggest beggar in the history of the world. And now we get the stress test results? Yeah, I can't wait to see these morsels of truth and wisdom!

This can of worms that Mr. Lewis has opened has huge ramifications, most importantly one of CREDIBILITY. I can only guess what my thoughts would have been as a child growing up in the 60's, the Sec. of the Treasury and Fed Chairman lied and blackmailed someone? So what if Merrill went down, they are only one Investment house, you mean the system is THAT fragile? This is the world's biggest debtor trying to hide JUST how weak, debilitated, and fragile the whole situation has become. One can only hope that foreigners go deaf, dumb, and blind for few a weeks since it is they, that Treasury relies on so heavily to fund our debt.

From today forward, it is now clear that ANYTHING can happen at ANYTIME. Everything is not what it seems to be, nothing is real in the financial world, and everything is worth nothing. As it turns out, the economy, real estate, and stock markets were all propped up and "Bulled" by borrowed money and dirty tricks. The entire "fiat" bull run has been bull shit, and to think we EVER questioned Gold ownership. No wonder we have been told on a daily basis that Gold is a "barbarous relic" and has no use. So they lied to us, what's the big deal? They will lie to us again tomorrow, ...and your point is? Clearly, things aren't what they used to be, now I sound like my parents. Sorry for the rant, I do feel much better though! Regards, Bill H.

 

end.

Bix Weir on the subject:

 

Bix…

B of A and the DIKE!

Hi Bill - 
The revelation that Bank of America was forced to buy Merrill Lynch is the nail in the coffin, the straw that broke the camels back, the beginning of the end...how many more sayings do you we need??!! 

There are no more fingers to stick in the dyke! 

This revelation is HUGE on so many fronts I can't even begin. First of all Bank of America will be sued by EVERY SHAREHOLDER for accepting this deal, not disclosing the "material information", falsely promoting the deal to the public and hiding the truth. The Treasury and the Federal Reserve will be investigated for illegally forcing the merger without any congressional approval or ANY PUBLIC DISCLOSURE.... 

AND THEY HAVE BEEN LYING TO THE PEOPLE FOR MONTHS THAT WE WERE AT THE BOTTOM AND THE BANKS ARE FINE! 

Bank of America will likely see a "Run"on the bank" within the next few weeks as the liability from this is incalculable! 

It's about to get VERY UGLY out there! 
Bix

Fellow cafe member Dave from Denver writes:

Andrew Cuomo's Smoking Gun

New York State Attorney General has unleashed a letter today which could well lead to an avalanche of lawsuits against, Bank of America, Ken Lewis and the BAC board, John Thain, Henry Paulson, the U.S. Treasury and Ben Bernanke et al at the Fed.

If you read through Mr. Cuomo's letter, there can no question in anyone's mind that Lewis, Paulson and Bernanke are guilty of committing fraud. This must be a serious issue because when it was being exposed on CNBC, CNBC quickly cut away just as Ken Lewis was telling Erin Burnett that he was told to keep his mouth shut.

At issue is whether or not Henry Paulson and Ben Bernanke, along with staff members wholly and severally at the Treasury Department and the Federal Reserve, forced Ken Lewis and the board at BAC to complete its merger with Merrill Lynch, despite Ken Lewis' decision that the financial condition of MER at the time of the merger agreement had been fraudulently misrepesented, covered up and had materially changed.

It would appear from a close reading of the letter sent from Andrew Cuomo to Government officials listed, that Ken Lewis was going to invoke a Material Adverse Change clause, due to a substantial deterioration in the assets of Merrill Lynch which appear to have been covered up during merger negotiations (i.e. hidden from sight during the due diligence process), in order to either abort or substantially renegotiate the terms of the BAC/MER shotgun wedding. Here is what the MAC clause is all about:

"THE MATERIAL ADVERSE CHANGE CLAUSE (MAC) as a closing condition has achieved permanent status as one of the most highly negotiated parts of acquisition agreements. The basic premise underlying a MAC is that the purchaser should receive the benefit of the bargain. In practice, a MAC included within the closing conditions of an acquisition agreement provides purchasers with an "out" in the event of unforeseen material adverse business or economic changes affecting or involving the target company or assets between the execution of the definitive acquisition agreement and the consummation of the transaction"

Please read the Cuomo letter in its entirety, as it contains statements and accusations from both Lewis and Paulson that are both accusatory of each other and self-incriminating. Here is just one snippet:

"Bank of America's attempt to exit the merger came to a halt on December 21, 2008. That day, Lewis informed Secretary Paulson that Bank of America still wanted to exit the merger agreement. According to Lewis, Secretary Paulson then advised Lewis that, if Bank of America invoked the MAC, its management and board would be replaced" page 2.

There is much more in that letter which can be used to go after every person listed above. Bernanke has denied making any of the statements contained in that letter. My bet would be that Bernanke is now on record lying.

At the very least, all the people listed above will subject to massive lawsuits by Bank of America shareholders. Hopefully Mr. Cuomo will prove to be more forthright than his predecessor, Eliot Spitzer who used his attacks on Wall Street to launch his bid for Governor of New York, and will use this as an opportunity to pursue justice for all the parties involved, not the least of which is the U.S. Taxpayer.

end.

Here is the letter and I urge everyone to read it line by line.  It will disgust you:

 

Here is the letter from Mr. Cuomo:http://zerohedge.blogspot.com/2009/04/cuomo-letter-exposing-paulsons-and.html

 

end.

 

Just in from Dave again:

This Cuomo thing is getting gooooood

This is a postcard perfect example of what happens when rats are trapped in a corner - they turn on each other:Paulson Contradicts Bernanke, Blames Bernanke For Lewis Threat"Hank Paulson admitted to Andrew Cuomo that he threatened to oust Ken Lewis and the Bank of America board if Bank of America invoked a Material Adverse Change (MAC) clause to block the deal, Cuomo says. Paulson also added, however, that he made this threat at the request of Ben Bernanke"

http://www.businessinsider.com/henry-blodget-paulson-contradicts-bernanke-blames-bernanke-for-lewis-threat-2009-4

Ken Lewis Shafted Bank Of America Shareholders To Save His Job (BAC)

http://www.businessinsider.com/henry-blodget-ken-lewis-shafted-bank-of-america-shareholders-to-save-his-job-2009-4I think the media is either being told to not report all of this, or they are vastly underestimating the seriousness of what Cuomo has unleashed today. This is going to be epic entertainment watching this unfold.

end.

In essence during the 2nd week of December prior to the closing of the deal in which Bank of America was to acquire Merrill Lynch, the CFO  of Bank of America appproached Ken Lewis, the CEO of Bank of America and he told him of the deteriorating conditions at Merrill.  Ken Lewis then went to Paulson and said to him that the BAC was going to invoke the MAC or an adverse material change in the business of Merrill and thus negate the deal.

 

Paulson then told Lewis that if he did not go through with the deal he will be removed from office along with his entire board. Paulson also told him that if he did not complete the deal then the nation would have systemic risk of default.

Lewis then decided to go through with the deal.

In testimony to Cuomo, all of the above has been confirmed with one exception.  Paulson stated that it was Bernanke's idea to turf the management if they invoked the MAC.  Bernanke has denied this.

 

The shareholders of BAC have been sacrified with the government blackmailing Lewis and other management officials of losing their jobs and their huge salaries and bonuses!!

 

Looks to me like a serious fraud in the making.

 

stay tuned.

 

I will report on Saturday.

 

Tuesday, April 21, 2009

april 21.09 commentary.

 
Good evening Ladies and Gentlemen:
 
Tonight I will be light on you.
 
Gold closed down by 4.70 to 888.30.  Silver fell by 8 cents to 12.07.  The gold comex OI fell by 2300 contracts. The silver OI rose by 1000 contracts.  Yesterday we had gold rise by 19.00 so the fall of 3000 contracts means a little short covering by the banks.  Silver just does it own thing.
 
Today, the yield on the 30 day treasuries 'skyrocketed' from .01% yield on a yearly basis to .04%.  Very tiny gain.
However the 30 year treasury bond fell badly in price and higher in yield.  The bonds fell in price by a full 1 point with the treasury bond price at 125.60.
 
Today, Geithner appeared before congress and stated that all but 110 billion dollars of the TARP money has been spent.  He also gave a new plan:
 
The TARP money is going to be converted into bank equity.  He also stated that the banks have adequate capital.
 
Not to many were happy with these new plans:
 
 

The American Banker: Conversion Plan Yields Blowback on Treasury Another week, another new plan to stabilize the banking industry.

But the latest one — converting government-held preferred stakes in banks into common equity — seems to have backfired as critics cited legal and practical obstacles and shares of financial services companies plummeted on the news.

"We should have a moratorium on clever new schemes by the week," said Amar Bhide, a professor of finance at Columbia University…

"In a sense, they're gaming the analysts because the analysts have made this assumption that TCE is what matters — well, then Treasury's going to shift its positions around to make the TCE look stronger," said Chris Low, the chief economist at First Horizon National Corp.'s FTN Financial… L. William Seidman, a former chairman of the Federal Deposit Insurance Corp., said, "If you have the government as a partner in a way that you can't get rid of them … long term, that could be a problem."  end....

http://www.americanbanker.com/article.html?
id=20090420U2G7SW1R&from=home&email=y.
.

end.

However, Meredith Whitney came out with this commentary late in the day:

05:29 Former Oppenheimer analyst Meredith Whitney believes US banks are likely to post "negative earnings" after Q1 profits -- Bloomberg
In an interview, Whitney believes that negative earnings will be produced in "subsequent quarters" following positive earnings in Q1 and also believes "big" banks will pass the government's stress tests. Whitney believes Citi (C) will reduce at least $500B in credit lines, that conditions at Bank of America (BAC), which helped Q1 earnings, aren't "replicable," and that the credit card industry will reduce $2.7T in credit-card lines, which could apply additional pressure to home prices. 
* * * * *

end.

The following companies issued their earnings report and they were all bad:

Breaking news: See Market Pulse for all the latest

  • DuPont (DD) said its first-quarter net income plunged 59% due to a severe decline in demand as it also lowered its earnings target for 2009. Net profit for the first three months of the year amounted to $489 million, or 54 cents a share, down from $1.2 billion, or $1.31 a share, a year earlier. Analysts had been expecting earnings of 53 cents a share for the quarter. The group said it now sees 2009 earnings in a range of $1.70 to $2.10 a share.Pharmaceutical giant Merck & Co. (MRK) cut its 2009 revenue view and delayed filing a U.S. application for a migraine drug as it reported a 56% decline in first-quarter profit. Its first-quarter net dropped to $1.46 billion, or 67 cents a share, and sales fell 8% to $5.39 billion. Excluding one-time items, Merck said it would have earned 74 cents. Analysts had forecast earnings of 78 cents a share. It still sees adjusted earnings between $3.15 and $3.30 for the year, but cut its revenue view by $500 million to $23.2 billion.Coca-Cola Inc. (KO) said is first-quarter profit fell 10% to $1.35 billion, or 58 cents a share. Adjusted net income totaled 65 cents a share. Operating revenue fell 3% to $7.17 billion from $7.38 billion in the year-ago period. Wall Street analysts expected earnings of 65 cents a share on revenue of $7.5 billion.United Technologies Corp. (UTX) said its first-quarter earnings fell 24% to $722 million, or 78 cents a share. Revenue fell 12% to $12.2 billion, reflecting a negative foreign-exchange rate and declines in organic sales. Excluding one-time items, the Hartford, Conn., conglomerate said it would have earned 87 cents a share in the most recent quarter, while analysts were looking for earnings of 78 cents a share. For the full year, UTC reaffirmed its full-year profit outlook of $4 to $4.50 a share.Construction and mining equipment firm Caterpillar Inc. (CAT) said it swung to a first-quarter net loss of $112 million, or 19 cents a share, from a profit of $922 million, or $1.45 a share, a year earlier, as it also cut its sales outlook. Total sales for the first quarter fell 22% to $9.22 billion and results were also hit by $558 million of charges linked to its workforce reduction. Excluding that charge, earnings for the quarter would have been 39 cents a share. Caterpillar said it expects 2009 sales in a range of plus or minus 10% around a midpoint of $35 billion.Bank of New York Mellon (BK) said its first-quarter net income fell to $370 million, or 28 cents a share, from $755 million, or 65 cents a share, in the year-ago period. The earnings-per-share figure for the latest quarter is after the company paid $47 million in preferred dividends. Analysts polled by Thomson Reuters had expected the company to earn 63 cents a share in the quarter. Bank of New York also said it cut its quarterly dividend to 9 cents a share from 24 cents.

end.

The IMF has stated that they believe global losses by the year 2010 will total in excess of 4 trillion dollars:

IMF Says Global Losses From Credit Crisis May Hit $4.1 Trillion

April 21 (Bloomberg) -- Worldwide losses tied to rotten loans and securitized assets may reach $4.1 trillion by the end of 2010 as the recession and credit crisis exact a higher toll on financial institutions, the International Monetary Fund said.Banks will shoulder about 61 percent of the writedowns, with insurers, pension funds and other nonbanks assuming the rest, the Washington-based lender said in a report released today on the state of the global financial system. The fund projected losses of $2.7 trillion at U.S. financial institutions, an increase from its estimates of $2.2 trillion in January and $1.4 trillion in October.Without fiscal stimulus and other government action, banks will probably curtail lending in coming months, worsening the most severe global slump in six decades, the IMF said. Even with forceful state policies, "the deleveraging process will be slow and painful", the fund said…

-END-

Here are todays inventory levels on gold and silver

 

COMEX Warehouse Stocks April 21, 2009

SILVER

ZERO ozs withdrawn from the dealer’s inventory. 
458,894 ozs withdrawn from the customer inventory
Total dealer inventory 63.5 Mozs
Total customer inventory 52.8 Mozs
Combined Total 116.4 MOZ

There was an "adjustment" to the Dealer category of +588,346 ozs. An adjustment?! Are you kidding? What did they do stack 18 tonnes of silver in the wrong place and they only realized today?! There was also an adjustment to the customary inventory of -178,199 ozs. These are very big accounting adjustments for a warehouse inventory and it adds fuel to the fire of suspicion of what is really available and unencumbered. 

GOLD

5586 ozs (net) deposited in the dealers (registered) category
1958 ozs deposited in the customer (eligible) category
Total dealer inventory 2.55 Mozs
Total customer inventory 5.91 Mozs
Combined Total 8.46 MOZ

Gold was trading in backwardation during the session and closed with a very flat contango

APR $882.1
MAY $882.4
JUN $887.7

end.

 

There is still 2000 contracts in gold remaining to be hit.    Also the gold comex prices are contracting.  We are coming closer and closer to backwardation.

The Federal Debt came in at 11.189 trillion.  This is surprising.  Why?  For the first time, we see no lowering of the federal debt when April 15.09 arrived with all of the tax revenues received.

 

It looks like the Treasury has received a lot less in revenue than they expected.

I will try and deliver a commentary tomorrow night but it will be late.  If I come home too late, I will comment on Thursday.

Harvey.

 

 

 

 

 

 

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