Saturday, May 9, 2009

May 9.09 commentary.

Good morning Ladies and Gentlemen:
Gold basically remained at par after a roller coaster ride.  It finished the day at 914.10 with silver falling by 8 cents to 13.93.
The open interest on the gold contract rose about 13000 for the last 2 days.  Silver's OI rose dramatically up another 4000 to 93000.  For both metals, the cartel sent in their heavy artillery to quell the added demand. The gold and silver ETF have remained constant for months now.
For 5 consecutive days, gold rose early, got hit and then like an eveready battery got up again. There is no question that we have both central bank intervention and central bank purchasing of gold.
The ECB bank on Wednesday, announced one small captive banking selling of gold of .3 tonnes of gold.  However one bank was purchasing gold and it was not for coin minting.
It has been rumoured that Germany is asking for its gold stored at West Point.  Good luck to them!!. Maybe Germany is buying gold for its own account fearing it will not be able to retrieve its gold on usa soil.
The news of the day:
the dollar tanked big time closing down a full 1.16 points to 82.44.  The huge resistance level at 83.00 has been broken.
The long bond after being up for most of the day continued on its downside closing at 120.2.   JPMorgan is beginning to sweat with all of those interest rate swaps.
The bond auction results were terrifying to government officials:

Thursday:13:03 BID 30-yr bond auction draws 4.288%, with 57.15% allotted at high 

Bid/cover 2.14 vs. average of the last 5 auctions 2.32 
Indirect participation 33% vs. avg 30.78% 
Following the results: 
2-yr (2/32) to 0.95% 
10-yr (31/32) to 3.26% 
Dow 8436.46, (75.26)  
Reference Link 



The more important 10 yr bond saw a big rise in the yield to 3.34%.  All mortgages feed off this rate.  Quantitive easing is just not working.


Bill Holter describes in detail the horrors that will beset usa citizens when the bond auction fails. Here is his commentary on the matter:

Bill H:
To all; the Treasury auction today was far weaker than anticipated. The 10 year yield that was threatening last week and early this one to break above 3%, has hit an after market yield of 3.35% this evening. If I am correct in my analysis, this is the beginning of the Treasury having its "credit line" shut off by the rest of the world. This will bring full blown Fed monetization front and center. This bears very close scrutiny as events happen much faster in today's internet world than even 5-10 years ago. If I am correct, we could see "the day" that will live in infamy VERY VERY SOON.

The ramifications are huge as EVERYTHING from the banking system down to your local coffee shop will feel the effects of the credit spigot being turned off. This could (will) include market closures, shortages, social unrest etc.. Take a minute to think about what this means, if Uncle Sam has problems borrowing then all of the ill advised "free money" they are spreading around will come to an abrupt halt. I will not need to call "the day" to your attention as the panic will be obvious in all markets and for all to see. Please understand that your Gold positions are the only things that will provide wealth to live on if (when) this scenario pans out. Make sure you have whatever goods on hand that you think you will need for several months as distribution will be affected. Remember, a failed auction by the world's largest debtor and issuer of the world's reserve currency will equal bankruptcy. I am not trying to be alarmist, this is how I see it. Regards, Bill H.



and again on the stress tests and treasury auctions:


To all; we will get the long awaited "stress test" for the largest 19 banks this afternoon. We will hear that 10 or more banks will need more capital. We have also heard that NONE of these 19 banks will be allowed to fail. Sooooo... what's the big deal? We knew all of this more than 2 months ago when this ill advised stress test was first announced.

The real stress test, as I written about before, will be the action in the Treasury auctions. I have long maintained that a failed auction could very well be a (the) trigger that begins the next panic phase. Think about it, the marketplace and banking systems are both far larger than the Treasury, once the Treasury hits the "lending wall", who is going to bail them out. The Chinese, Russians, Arabs, Brazilians, etc., have already started backing away from our auctions as shown by longer term Treasury yields rising precipitously. The question of "who will bail out our Treasury?" is an honest to goodness question. As I watch yields march upward, I can't help but think that this question is already starting to make the global rounds.

Obviously the Fed started to feel foreigners backing away back in Feb. and March, they reacted by announcing their intent to monetize. No nation has ever in all of history, been able to right their economic or financial ship by monetizing debt. This time will be no different except for the fact that Dollars and US debt has spread so far and wide that virtually nothing will be left untouched by this circus. I smell so many rats, but this is the biggest and by far the most important. Regards, Bill H.


The big news of the day was the release of the unemployment and the number reported was not bad down by 533000 workers.  The unemployment rate jumped to 8.9%.

However if you read the fine print which nobody ever does, you will find they added a huge 226000 workers with the B/D plug.  For those that do not understand this plug number, the Bureau

makes a calculation that when an individual losses his job  (d = death of job) he will start to be entrepreneurial and start a business and hire new people  (birth).

For the last 2 years they always add this plug number to their calculation and everybody believes these fairy tales.  Here is the report on the jobs number and other commentaries on the matter:

First the offical news:


U.S. payrolls fall by 539,000 

WASHINGTON (Reuters) - U.S. employers cut a smaller-than-expected 539,000 jobs in April, the smallest amount since October, according to government data on Friday that hinted at some improvement in the labor market and the recession-hit economy. 

However, the Labor Department said the unemployment rate soared to 8.9 percent, the highest since September 1983. March's payrolls figure was revised to show a decline of 699,000, compared with a previously reported drop of 663,000. Job losses in February were bumped up to 681,000 from the previously estimated 651,000. 

Analysts polled by Reuters had forecast non-farm payrolls dropping 590,000 in April. The unemployment rate had been forecast to rise to 8.9 percent from 8.5 percent in March. 

The report showed job losses across almost all sectors, although at a less steep pace than in the previous months. The government and education and health services sectors added jobs. 

The manufacturing sector lost 149,000 jobs in April, after shedding 167,000 the prior month. Construction industries cut 110,000 jobs after losing 135,000 in March. 

The service-providing industry slashed 269,000 positions after eliminating 381,000 in March. 

Since the start of the recession in December 2007, the economy has lost 5.7 million jobs, the department said.



and now commentary from Denver Dave:

Dave from Denver…

re: jobs number

of course, the number was about as expected, maybe a bit better. BUT, they revised the March number down from -633k to -699. Of course, nobody pays attention to minor details like "hey, maybe the jobs number that helped ignite this bear market rally was an incorrect number." Waiting to see what kind of fairy tale the birth death model provided this month...

The Birth/Death model fairy tale

The fictitious birth/death model added 226,000 jobs to the employment report today. Some categories that had big job growth in April? Construction added 38,000 (give me a break); Leisure and Hospitality (think hotels, casinos - beneficiaries of big disposable income) added 76,000; Professional services added 65,000 (I guess the Govt found some law firms hiring, despite big lawyer layoffs reported in Q1). Ya have to wonder where the Government is finding these jobs, given the continued contraction in the economy and the private sector layoff estimates continue to grow...Fairy tale jobs for a fairy tale economy.I think all you can do is look at these numbers and marvel had how brilliant George Orwell's insight was.***



and from Garic:

Garic on the same…

Nonfarm payroll report adjusted for census and birth death model. Government jobs are cash flow negative for treasury; therefore, negative for the dollar. Private jobs are cash flow positive. Phantom birth/death model job additions in a severe recession are nothing less than fraud:


and now from Mexico Mike:

Then, Mexico Mike…

Hi Bill!
It seems that the economy is in great shape these days, since ONLY 539,000 jobs were lost in April. I guess there is cheering all up and down Wall St and the market is celebrating with another 100 point rise. What great news! Meanwhile, the stress tests revealed that
several of the largest banks were undercapitalized and this too was welcomed as great news since the sector has run even high after an already overbought binge that has carried the financial stocks to levels undreamed of just a couple of months ago. This has to go down as one of the most effective confidence scams in history.

Remember when a billion dollars was a lot of money? The last time the banks really went to hell over the savings and loan crisis in the 80s, it cost just a few billion dollars to clean up the whole mess. Back then the market would have been shocked if a blue chip stock lost a billion dollars in an entire year. These days not so much... A company can fall right on its ass and lose tens of billions in a quarter and somehow they can spin their way out of trouble by pretending that the estimates were for much worse damage. Fannie Mae, anyone?

And lets not forget the other big scam that has fooled the deep-thinkers on Wall St: report a key economic number one month that seems so much better than expectations, and then the following month revise the numbers lower. And it works! Month after month the same routine and no one seems to be able to figure it all out. Today we learned that the REAL job losses for March were 699,000 and not the 663,000 that was originally reported. Now I doubt even the revised numbers are accurate and things are probably still understated, but nevermind. There should be lineups at the windows of office towers with distraught investors getting ready to jump. Instead, we are hearing the same bozos on CNBC declare that the recession is over, and that the bottom is in. The overall sentiment is almost euphoric.

Investors have collectively reached the point where they are willing to believe anything as long as the market is nudged higher. And this scam is so easy to maintain when there is a big slush fund of taxpayer money floating around that no one is bothering to keep track of.

Nobody has ever questioned where the budget comes from to underwrite the acitivity of the PPT, and it must cost many billions of dollars to be in there day after day, buying the hell out of the financial stocks, backstopping the bond market, and suppressing gold. But thats okay because as long as you can make the market do what you want it to for a short time, the media will come up with the excuses for you to explain the action and the investors will just lap it up with no questions asked and party all the way to the bank.

The big problem with all such Ponzi schemes is that eventually you run out of money to keep the good times rolling. Sooner or later things slow down and people start to squirm and question if its all really that good. The housing bust in 2007 dramatically demonstrated howm fast things can go sour. This phony market rally is going to end the same way. No matter how good your house of cards looks, it will eventually collapse. It takes a lot more than just people feeling good about the economy to deliver real economic strength. And if you peel back the veneer that strength is not there, its the same old rot that was undermining the markets into a severe decline.

People are in debt up to their eyeballs, and nearly 6 million jobsb have been lost in 18 months, but somehow the economists figure that renewed spending is going to materialize and save the day. Somehow they tell us the trend of busted mortgages is going to diminish and the overhang of foreclosed properties will dry up. I dont think it can happen so easily and until we get that real fundamental reversal in place, all the spin in the world will eventually backfire. Next month we will get more revised data that shows the trend of job losses did not turn around and probably another month of horrible economic numbers will be reported. Behind the bogus numbers there is a slow-motion train wreck piling up and none of that seems to matter.
For now...


I thought the economy was improving with consumers beginning to spend: ( I guess not)

U.S. consumer credit falls a record $11.1 bln in March 

WASHINGTON, May 7 (Reuters) - U.S. consumer borrowing fell more than expected in March, plunging a record $11.1 billion, a Federal Reserve report showed on Thursday. 

March consumer credit fell at an annual rate of 5.2 percent to a total of $2.55 trillion. This was the biggest percentage drop since December 1990. 

February's decrease was revised to $8.1 billion from an originally reported $7.5 billion drop. 

Analysts polled by Reuters were expecting a $3.5 billion drop in consumer borrowing for March. 

Non-revolving credit, which includes closed-end loans for big-ticket items like cars, boats, college education and holidays, dropped $5.7 billion, or at a 4.2 percent rate, to $1.6 trillion. 
Revolving credit, made up of credit and charge cards, fell $5.4 billion, or at a 6.8 percent rate, to $946 billion in March. This compared with a revised $9.7 billion drop in February.



As I wrote on Thursday, the banks are in need of 75 billion dollars in needed funding.  Here is another Bill Holter article on the subject:

Bill H:

What stress?

To all, the stress test results have been released. Stress? What stress? The most adverse condition the government could envision was an 8.1% unemployment rate, by the way, the fudged unemployment numbers released this morning were an 8.9% rate. How could they be so stupid as to release unemployment numbers that are higher than the WORST CASE scenario they could envision? Stupid is as stupid does!

Early this morning, Ken Lewis of B of A was interviewed on CNBC. He disagreed with government calculations that said B of A needs to raise capital, he then went on to say that they will comply and sell assets and raise capital. He also said that they wanted to pay back the TARP money. I guess I just don't get it, they are under capitalized as judged by regulators using worst case guidelines that have already been exceeded, the bank needs to raise capital and sell assets just to reach this hurdle that clearly is too low, yet Mr. Lewis wants to pay back the TARP money? How? With what? Do they have a stash of tuna fish that we don't know about? And all of this is viewed as bullish by the equity markets?

Something that hasn't been talked about for a while now is the LIBOR rate. Remember this one? Back in Sept. or Oct., it blew out to over 5% for the 1 year rate. Well, hip, hip, hurrah, the rate is now under 1%! Has anyone watched how it got from lofty levels to the current sub 1%? If you haven't watched, you didn't miss anything at all, the rate has gone down, down, down. Since November, I don't believe there was a SINGLE day that the rate edged even 1/100th of a percent higher, it has been flat or gone down every day for about 6 months. This is why it is referred to as "Lie"bor. I wish someone could look back in history with a computer, search every market in every country in every currency, and see whether this has EVER happened before, anytime, anyplace, on any planet! Not one uptick for even one day? They must think we are not paying attention, or worse, just plain stupid.

And this just in, CNBC says that Mr. Obama's budget plan has been gone over with a fine tooth comb and guess what? It doesn't add up. No, it can't be, I just don't believe it! You mean that 2+2 doesn't equal 4, AGAIN! Not possible! I am not picking on our new President here, this is just the latest broken calculator in a string that goes back to the era of muscle cars. Nothing adds up and everyone cheers it, but I would be willing to bet that the calculators of foreigners still work properly. Keep watching the Treasury yields, foreigners will use their calculators and then "vote" in the Treasury market. Higher yields will denote a vote of NO! Regards, Bill Holter




I pointed this out to you on Thursday, but it is worth repeating.  This man was chief of the NY Fed and also on Goldman's board.  He funnelled huge sums to Goldman through the AIG credit default swap.  He also bought huge amts of Goldman stock at 56.00  and reaped a gain of a few million dollars.   And  they go after Martha Stewart for 44,000 ???

17:23 New York's Fed Chairman Stephen Friedman resigns effective immediately - Bloomberg
* * * * *


I guess things are not so rosy over in Euroland.  Trichet lowered his benchmark rate to 1% and also announced QE as well. 

China is very happy to pick up any quantity of gold offered.


The federal debt rose again yesterday to 12.52 trillion dollars from 12.2 trillion as they now start to account for all that QE going on.

Federal officials believe that they will need to raise the debt ceiling again in July.  They hid the last rise from 11.3 to 12.1 in February.


Barrick gold finally got their approvals from both Argentina and Chile.  The costs will be huge at around 3 billion dollars but this system holds over 17 million oz of gold and over 100 million oz of silver.  The usa will get is "deep storage " gold back from the leasing done  from 1996-2003.


Speak to you on Monday



Thursday, May 7, 2009

In todays commentary, I forgot to mention the huge drop in the long bond today of a full 2 points.
The yield skyrocketed.
It is important to mention to you the severe stress that JPMorgan will face on another 4-5 point drop.
The reason is that JPMorgan is short the 1 month treasuries which is basically at zero yield and long trillions of
30 year bonds in the future.  These are known as interest rate swaps and JPMorgan has the lions share of them.
One year ago they held over 100 trillion dollars of these bonds.  Next week, the BIS will release the July-Dec figures and this
will tell the true story.
Let's say they did not increase at all and they remained at 100 trillion dollars.
Suppose then an increase of yield from 3.6 to 5 %.
The loss to JPMorgan would be 1.5% x 100 trillion dollars or 1.5 trillion dollars.
In other words, they blow up.
speak to you on  Saturday.

May 7.09 commentary.

Good evening Ladies and Gentlemen:
Gold closed at 917.50 up from 911.00 up about 6.50.  Silver finished the day at 13.99 up from 13.70 for a gain of 29 cents. During the opening  few minutes the comex had gold trading at around 923.00 with silver trading at 14.11.  The cartel showed up trying to quell advancing demand.
First of all, this news came across just now at 6 pm EDT:
New York Fed chief quits over Goldman Sachs ties
Updated 7m ago |  Comment    |  Recommend   E-mail | Save | Print | Subscribe to stories like this
Stephen Friedman, chairman of the board of the Federal Reserve Bank of New York, resigned Thursday.

In a letter to Fed officials, Friedman said, "Today, although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper. The Federal Reserve System has important work to do and does not need this distraction."

Earlier this week, The Wall Street Journal raised questions about the influence of Goldman Sachs, whose board Friedman sat on, in the shaping of Washington's response to the financial crisis.

"The Federal Reserve Bank of New York shaped Washington's response to the financial crisis late last year, which buoyed Goldman Sachs Group Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after.

"During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy," the Journal story said.

The announcement of Friedman's resignation came from the New York Fed shortly after the Federal Reserve in Washington released results of stress tests on 19 of the largest bank holding companies.

Goldman was among the 19, but the report says it does not need to raise its capital cushion.

As for filling Friedman's Fed post, the New York Fed statement says: "Consistent with the Federal Reserve Act, Denis M. Hughes, deputy chair of the board, will exercise the powers and duties of the chair."


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