Saturday, May 23, 2009

May 23.09 commentary..extremely important.

First of all, our good friend Reg Howe has just released his latest commentary at
It is in the clear and I urge you to read it.  In a nutshell gold derivatives have fallen in the face of the economic collapse in 2008 as banks try and recover from the Lehman failure.  However the forwards feld by JPMorgan et al remain constant.
Howe states that the central banks are having massive problems because the libor rate and corresponding lease rates are falling. The future price of gold is basically the same as spot as holders of gold refuse to sell  their  spot gold and buy a cheaper future month.
This will break the banks!!
I urge you all to read his paper.
OK lets start with events yesterday.
Gold closed up by 8.70 to 958.20.  Silver closed up 25 cents to 14.68 blowing past 14.50 resistance.
The open interest tells the story:
OI on gold comex rose by 11000 to 390,000 as the cartel dug in with their heals to supply the needed paper as everyone piled on.
In silver the OI rose by 377 contracts to 96096 as cartl members were loathe to supply the needed paper and also many covered their shorts. 

There is no doubt there is focus on the gold market and I will cover the comex situation at the end of this commentary.
I, and others  have heard from a few sources that  problems that are occuring at the comex.  First this from Bill Murphy:
Two different sources reported to me this morning they are hearing of troubles brewing at the Comex. One said there is grave concern over the coming June gold option expiry. The other is hearing that a commercial short is in trouble… not sure whether that is gold or silver … not sure whether that be gold or silver. This could get very exciting and SOON.
Yesterday saw significant developments in the markets.  The long bond fell below 120 for the first time in over 6 months to 119.31 with a loss of almost a full point. 
The 10 year treasury saw its yield rise to around  3.44%.  Remember that all mortgages derive funding from this financial vehicle.
The Dow collapsed after being up by 50 points.  It succumbed down by 30 points at the close.The usa dollar also broke 80 for the first time closing at 79.75.
In a strange development, a relatively large bank Bank United was taken over by the FDIC on Thursday.
The loss to the FDIC was stated at around 5 billion dollars.
It is strange that the event took place on Thursday night instead of the usual Friday night.
It is unusual that two cabel supporters (co-conspirators) came to the rescue of this bank, Blackstone Group and Carllyle Group.
Last week the FDIC had only 10 billion dollars in the kitty and it will be down to its last 5 billion after this weekend.  How will the 500 billion line of credit at the Treasury be funded for the FDIC's credit.
Very interesting times indeed!!
Here is Bill Holter's commentary on Bank United and on the impending General Motors bankruptcy. (General Motors received 4 billion dollars in needed cash from TARP money)

Bill H:

To all; BankUnited (at a cost of $4.9billion to FDIC) was taken over last night and the government says they will force a GM bankruptcy next week (while lending another $30 billion). The Dollar didn't even bother to stop at the "80" level which is below the supposed 81-82 support level while the 10 year Treasury blew up and through 3.4%. Each one of these occurrences are stock market bearish, but lo and behold the market is up today.

The sentiment of "don't worry be happy" seems to hold sway currently and market pundits are still saying the "bad news" is already in the market. Yes, GM's death has been well known for a while now, but I balk at believing their news has been fully discounted. BankUnited and the collapse of the Dollar and Treasuries are certainly not "in the market". With the ongoing resets of adjustable rates, I just don't see how any type of real estate bottom process can begin with rates marching upward. If we were to experience next week what we've witnessed this week in the Treasury and Dollar market, the plunge protection team will more than have their hands full in preventing a full scale panic.

Summer mentality begins next Tuesday after the remembrance of Memorial day, we will soon see just how stable the system really is. Massive Treasury supply this summer will probably do the trick in unveiling this financial house of cards that is built upon a paper foundation. Have a nice long weekend and get ready for a roller coaster ride like never before. Regards, Bill H.

There are many reports where economists are noting central banks cashing in their bonds, attacking the strong bid put up by Bernanke at the Fed:

If Foreign Central Banks are selling into Ben's bid then the game is literally weeks or even days away from being over.

Oh oh......

From the forum, wire from Reuters claimed original source:

21. There apparently is a new wrinkle to the intermediation trade between buying from Treasury to sell to the Fed with real money, including central banks, now in on the act. Indeed, several Street sources relay central banks were aggressive offers into this morning's coupon pass, with one letting go of a large block of old 5-years. Other offers too are coming in from embedded Asian real money longs -- in the higher coupons -- also looking to sell size without unduly upsetting the market, and especially considering the illiquidity in off- the-run bids from the Street. 

Whether influenced or not by the much higher tenders coming in on the Fed Passes ($45 bln tendered for $7.4 bln bought in today's pass for a 16.2% hit rate), fast money has been tattooing the bid and especially so in the belly with the 10-year most leaned on. Note as well, earlier this week the Bank of England (BoE) gilt pass too saw a need to offer paper at or below the market's bid side in order to get sales off.

So now what Ben?

If Foreign Central Banks are selling into Ben's bid then the game is literally weeks or even days away from being over.

I have written for over a year about the potential for a bond-market implosion and subsequent economic collapse.

Bernanke, if he continues to play his "QE" games into this, assuming it is real, must be immediately forced from office by President Obama and/or Congress.

In short we must choose the (much) higher interest rate path and choose it now, because that is now an assured outcome.

We can choose between significantly higher interest rates and an economic collapse along withsignificantly higher interest rates.

Avoiding the higher interest rate outcome no longer appears to be possible exactly as I have been talking about for more than a year.

And exactly as in the 1930s, we will wind up in the same place with "The Fed" being blamed for the "loss of liquidity" when in fact the truth is that it was the government attempting to spend more than it made, and finding the market unwilling to support insane deficit spending, that led to the bond market dislocation, much higher interest rates, and the second phase of the economic collapse.

We are following the precise same path we went down in the 1930s.

Hope you're ready, and say thanks to Ben, Hank, Geithner and of course Obama, all of whom think they can ignore the realities of the market.


In other economic news, farm prices in the Mid west are declining by 6%:
17:05 Chicago Fed reports steepest quarterly decline in farmland prices in 24 years - WSJ
The value of good agricultural land on 1-Apr in the Chicago Fed's district - which includes all or parts of Illinois, Indiana, Iowa, Michigan and Wisconsin - was 6% lower than it was on 1-Jan. The decline was the steepest since 1985. On an annual basis, the price of farmland on 1-Apr was just 2% higher compared to the year-ago period. Recall that farmland prices were rising at double-digit rates across much of the Midwest on a y/y basis until last fall.
Reference Link (subscription required) 
Shopping malls are resembling ghost towns as tenants just pack up as they cannot pay the rent.  Shoppers are just not shopping!!
05:53 Malls resemble ghost towns in recession - WSJ
As anchor tenants and other key ones close more locations, malls across the country suffer. A real-estate research firm says comps in US malls fell (6.5%) for the 12 months ended 31-Mar. The article lists the reasons malls fail, pinning a fair amount of blame on rising consumer preference for big-box operations. The effects are felt not only by mall operators, but also by retailers like Saks (SKS), JC Penney (JCP), Sears (SHLD), and Macy's (M).
Reference Link (subscription required) 
Last night, the government released its federal debt and it climbed significantly to 11.305 trillion from 11.290 trillion for a gain of 15 billion dollars in a day.  It looks like the average the government is adding to its debt is around 8-10 billion per day.
This is from Nouriel Roubini where he says that the "green shoots" are nothing but "yellow weeds""

Doctor Doom
Don't Believe The Optimists
Nouriel Roubini, 05.21.09, 12:01 AM EDT

Think you see green shoots? You're wrong ...

"A careful and detailed analysis of the four green shoots of recovery (employment trends, retail sales/consumption, industrial production and housing) that Goldman Sachs and other proponents of the "green shoots" hypothesis have been brandishing for three months now suggests that all four green shoots are still yellow weeds. Data may improve in the next few months--as aggressive policy stimulus makes a difference--and the economy will bottom out by year-end or early 2010. But the widespread view that the bottom of the U.S. recession has been reached--or will be reached next month--has been dashed by the most recent macroeconomic data."

On the demand side of things,  the demand for gold and gold coins are rising:

South Afica gold coin demand hits all time high

INTERNATIONAL. The demand for gold coins has hit an all time high, the South Africa Gold Coin Exchange said on Friday.

"The rapidly growing demand for gold coins strongly suggests that the gold bull market is well set to extend itself strongly into the future," said chairman Alan Demby in a statement…

Gold 1 oz Kruggerands are going on Ebay for 1020.00 usa per coin.  The premiums for the central fund of Canada's GTU and CEF are now rising.
I will now present the comex silver and gold comex:

COMEX Warehouse Stocks May 22, 2009


ZERO ozs withdrawn from the dealer’s inventory 
605,851 ozs deposited in the customer inventory
Total dealer inventory 63.8 Mozs
Total customer inventory 56.6 Mozs
Combined Total 120.4 MOZ


886 ozs withdrawn from the dealers (registered) category 
ZERO ozs withdrawn from the customer (eligible) category
Total dealer inventory 2.23 Mozs
Total customer inventory 6.07 Mozs
Combined Total 8.3 MOZ

Almost nothing moving in gold again after the massive withdrawal yesterday. There was a large deposit of silver but in to the customer inventory. Does anyone really believe that customers are moving their stash of silver into the COMEX when there is clearly such suspicious lack of credible metal movements and a total disconnect with delivery notices? If customers are doing this for safe keeping they need their heads examined!

There were 40 delivery notices in gold for the May contract bringing the total to 1462 or 146,200. 39 delivery notices were issued in silver bringing the total for the month to 3834 or 19 Mozs.

Jim Willie is reporting on rumors of trouble at the COMEX..from what I can see from the lack of coherence in their reporting the rumors should be well founded.

What is sigificant is the huge, in the money, gold comex at prices above 950.00.
Generally speaking the smart players are the comex option players.  It is now only 5 days left before the June expiry.
June is the second highest delivery month for gold after December as many players choose either June or December for their deliveries.
It is very unusual to see 44000 contracts remain at this late stage.  This represents over 4 million oz of gold and together with the regular comex gold expiry in a few days, we may see fireworks as many take delivery of metal instead of holding worthless fiat paper.
We have heard that Germany has demanded its gold at West Point.  It is not coming.
From July 08 to Dec 08, 220 tonnes of ear-marked gold has moved from the bank of NY to foreign destinations.  It has stopped as of now.  Could it be that the usa has not allowed foreign gold to be repatriated to their rightful owners on their soil?
Many questions and many unanswered questions!!
Speak to you on Tuesday as Monday is the usa Memorial day holiday .

Friday, May 22, 2009

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Thursday, May 21, 2009

May 2l.09 commentary.

Good evening Ladies and Gentlemen:
Gold closed up by 12.50 to 949.50.  Silver rose big time again, up by 16 cents to 14.43.
The OI on gold comex rose by a huge 12000 contracts to 379000 as speculators smell blood.
In silver the OI contracted a bit as some of the shorts vacate the arena.  It is getting a little too steamy for them especially with declining silver inventory.
The big news of the day is the  downgrade on the financial capital of the world, England:
S&P downgrades UK outlook

Published: May 21 2009 10:10 | Last updated: May 21 2009 13:23Sterling was hit on Thursday after the outlook for the UK economy was thrown into doubt when the country’s sovereign debt ratings were revised from stable to negative by Standard & Poor’s.S&P’s move is highly embarrassing for the Treasury and will give ammunition to the opposition Conservative party, which argues that the government is presiding over a growing and unstable mountain of debt



Today, we saw the long bond fall by 2 and 1/4 points to 120.2.  This move is huge.  Remember that around 116 the interest rate derivatives at JPMorgan blow up.

The 10 year treasury saw its yield rise to 3.37%.  The dollar tanked below 81 closing at around 80.49

This sent the stock market plummeting today.  Only a hail mary prevented the Dow from falling greater than 200 points.  It closed down 130 points.


Here is the news from PIMCO:


14:10 Pimco's Gross says U.S. dollar, stocks, bonds selling off on fears that U.S. at risk of losing AAA rating - Reuters



So both the usa and the UK have seen risks to their AAA ratings.

In economic news, the jobless rates continues at a higher than expected clip:

08:30 Jobless claims for w/e 16-May reported 631K vs. consensus 625K
Prior week revised to 643K from 637K. Continuing claims for w/e 9-May reported 6.662M vs. consensus 6.650M. Prior week revised to 6.587M from 6.560M. 
* * * * *

U.S. new jobless claims drop 12,000 last week 

WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless aid fell 12,000 last week, Labor Department data showed on Thursday, while so-called continued claims rose to a fresh record as the recession battered employment. 

Initial claims for state unemployment insurance benefits declined to a seasonally adjusted 631,000 in the week ended May 16 from a revised 643,000 the prior week, the Labor Department said. New claims have declined in three of the last four weeks. 

Analysts polled by Reuters had forecast 630,000 new claims versus a previously reported count of 637,000 the week before. 

The most severe U.S. recession in decades has already cost over 5 million jobs since it began in late 2007, and despite some recent indications that employment conditions might be stabilizing, the labor market remains in dire shape. 

The number of people staying on the benefits roll after drawing an initial week of aid increased by 75,000 to a more-then-forecast 6.662 million in the week ended May 9, the most recent week for which data is available. Analysts estimated so-called continued claims would be 6.65 million.



The Philly Mgf. area continues to contract.  No sign of recovery here:

Philly Fed factory activity contracts in May 

NEW YORK, May 21 (Reuters) - Manufacturing in the U.S. Mid-Atlantic area contracted in May for the eighth consecutive month, a regional Federal Reserve survey released on Thursday showed, but the rate of deterioration slowed slightly. 

The Philadelphia Federal Reserve Bank said its business activity index came in at minus 22.6 in May versus minus 24.4 in April. 

Though that was an improvement, it was still weaker than economists' expectations of minus 18.0, based on the median of forecasts among economists polled by Reuters. 

A reading below zero indicates contraction in the region's manufacturing sector. 

The survey covers factories in a region encompassing eastern Pennsylvania, southern New Jersey and Delaware and is looked at closely as one of the first indicators of the health of the U.S. manufacturing sector.


However the usa leading indicators are turned up.  I am still have not seen evidence of the green shoots spouting.  Here is the report:

US leading index up in April, first rise since June 

WASHINGTON, May 21 (Reuters) - A forward-looking measure of the U.S. economy in April posted its first rise since June 2008, a private research firm said on Thursday, suggesting a pickup in growth awaits the economy in the second half of 2009. 

The index of leading indicators, which is supposed to forecast economic trends six to nine months ahead, rose 1 percent in April after a revised 0.2 percent fall the previous month, the New York-based Conference Board said. 

"The leading indicators suggest that while the recession will continue in the near term, the declines will be less intense," said Ken Goldstein, a Conference Board economist. 

"If the indicators continue on the current track, that point might be reached in the second half of the year," Goldstein said. 

Wall Street economists had forecast a rise of 0.8 percent after an initial 0.3 percent March drop.


When I see commercial paper drop in quantity in confirms to me that there are NO GREEN SHOOTS:

US commercial paper lowest in 5 years-Fed 

NEW YORK, May 21 (Reuters) - The global credit crisis and weak economy continued to corrode the U.S. commercial paper market, which shrank to its lowest level outstanding in at least five years, Federal Reserve data showed on Thursday. 

For the week ended May. 20, the size of the U.S. commercial paper market, a vital source of short-term funding for routine operations at many companies, fell by $14.0 billion to $1.284 trillion outstanding, down from $1.298 trillion outstanding the previous week. 

The overall U.S. commercial paper market peaked at about $2.2 trillion outstanding in August 2007 when the credit crisis erupted. 

Asset-backed commercial paper outstanding fell by $25.8 billion in the latest week after contracting by $23.0 billion the previous week. 

But unsecured financial issuance outstanding rose by $3.8 billion after falling by $47.3 billion the previous week. 

Recently, U.S. banks have been able to sell some notes and bonds which are not guaranteed by the government as investors' risk appetite has started to recover. 

The modest rise in financial institutions' short-dated commercial paper "might be interrelated," with that trend, said Kenneth Kim, economist with Stone & McCarthy Research Associates, in Princeton, New Jersey. But Kim cautioned that one week's data was not enough to clearly signal an increase in demand for financial institutions' short maturity debt.


Take a look at these next two graphs.  This should put everything into perspective:

Consumer spending is 70.4% of U.S. GDP. All else being equal, it is not hard to forecast a collapse in consumer spending moving forward...


Bill Holter comments on the negative outlook for the UK economy:

Bill H:

Britain takes the lead…

To all; Britain has had it's debt outlook lowered to negative from stable by Standard and Poor's. Well duh, speaking of "stables", I guess someone at S+P finally looked in the barn and guess what, no horse! Correct me if I'm wrong, but I don't think there is currently ANY sovereign debt that could be rated "stable" as everything has a foundation of U.S. Treasuries. As you know, Britain sold over half of their Gold for the princely sum of roughly $270 per ounce between 1991-2002. Their Treasury now has 3-400 tons of Gold (maybe, maybe not) and God know how many tons of "horse manure" called U.S. Treasuries.

If you recall events from last fall, you will remember that the U.S. followed Britain by roughly a month or so with confessions of banking, real estate, and derivative problems. One must wonder (when not if) S+P will muck the U.S. stable only to give us the news we already know, Treasuries are too plentiful, they are becoming more plentiful, and believe it or not, there is huge credit risk in owning them. Make no mistake, 2009 is the year that will witness sovereign crack ups that will change finance for the rest of our lives. As I wrote yesterday, it looks like this summer to me. Regards, Bill H.


Here are the movements of silver and gold.  It seems huge amts of gold have left the comex .e. 215000 oz.  However the data here is very suspect:



COMEX Warehouse Stocks May 21, 2009


ZERO ozs withdrawn from the dealer’s inventory 
ZERO ozs withdrawn from the customer inventory
Total dealer inventory 63.8 Mozs
Total customer inventory 56.0 Mozs
Combined Total 119.8 MOZ


215,085 ozs withdrawn from the dealers (registered) category 
100 ozs withdrawn from the customer (eligible) category 
Total dealer inventory 2.23 Mozs
Total customer inventory 6.07 Mozs
Combined Total 8.3 MOZ

Well whadda ya know? After months of withdrawals of gold that you could carry away on a bicycle SUDDENLY there is a big metal movement. 215,085 ozs of gold was taken from the dealer inventory. This is 10% of their total inventory in a single day. Now that is more like what I expect when the WGC reports a massive 38% increase in investment demand in Q1. Ten days like that and the game is over!

Meanwhile the joke continues in silver with apparently no movement of metal.

There were 60 delivery notices in gold for the May contract bringing the total to 1442 or 144,200 …49% more than that was removed from the warehouse today! 14 delivery notices were issued in silver bringing the total for the month to 3815 or 19 Mozs.

Just as a reminder yesterday I said “The WGC announces that first quarter investment gold demand surged 38% and yet diddly squat moves in or out of the COMEX! I don’t think this charade can continue much longer as physical demand soars to unimaginable levels due to the massive influx of money into precious metals from the collapsing dollar and US Treasury markets. This is the Cartel’s worst nightmare because there is no other attractive place for money to go. They are doing an impression of King Canute trying to command the waves (make that Tsunami) to recede from the shore. This is when the Cartel meets for a showdown with the Laws of Economics. However, the Laws of Economics have shown up with a Bazooka and the Cartel has a Swiss Army Knife (made in China!). Guess who will win!"


It is very late and I am very I will bid you farewell and I will speak to you on Saturday.

There is one further development that I neglected to tell you.  The Libor 3 month rate has plummeted to .66% on a yearly basis.  Gold from month to month is only 40 cents contango.


Gold bugs are recognizing quantitative easing by governments around the world and they are buying real assets like gold, silver, and other commodities.


see you on Saturday.






Wednesday, May 20, 2009

May 20.09 commentary.

Good evening Ladies and Gentlemen:
Gold had a good day rising by 10.60 blasting past resistance, closing at 937.00  Silver followed suit rising by
16 cents to 14.27.
Both metals experienced sharply rising OI's as speculators pile on.  The gold comex OI rose by 2300 contracts to
368000.  The silver OI rose to 96070 for a gain of 1406.
The big story today was the collapse of the dollar falling to a close of 81.219 down .880.  The low for the day was 80.9.
Crude oil finished higher by 1.94 at 62.04.  The crb index rose by a huge 3.39 to 244.84.  It is clear that investors are bailing out of dollar assets and buying real things.
OK lets start with the big economic news of the day:
First off lets go to California where its citizens rejected 5 out of 6 propositions.  California's deficit for the year is now back to 21 billion dollars:  California bonds sank on the news.
The next big news came from the pension arena. The next crisis is the Pension Benefit Guaranty Corp.  These guys insures the pensions of 44 million Americans and it has amassed a record 33.5 billion dollars deficit...triple from just 6 months ago.  Here is the story:

Next to go belly up … Pension Benefit Guaranty Corp

Deficit surges at agency that insures pensions

By DEB RIECHMANN Associated Press Writer

(AP:WASHINGTON) In an ominous setback, the government agency that insures the pensions of 44 million Americans has amassed a record $33.5 billion deficit _ triple what it was just six months ago.

The bleak financial snapshot, in a report obtained by The Associated Press, raises new fears that a federal bailout eventually will be needed for the Pension Benefit Guaranty Corp. The beleaguered agency is being saddled with the underfunded pension plans of companies going bankrupt in the worst economic slump since the Great Depression.

A rare midyear financial update requested by Congress shows the $11.1 billion deficit the agency posted at the end of its fiscal year on Sept. 30 has swelled by $22.5 billion to its highest level in the agency’s 35-year history.

The agency’s acting director says, however, that the more than 640,000 people who currently receive PBGC checks need not worry about the deficit.

"We have plenty of money to make those monthly payments promised to them for the near future," Vince Snowbarger said Tuesday. "We’re comfortable that for the time being we’ve got a way to make sure those payments are going to be there. Long term there is going to have to be some resolution of that deficit. I think at some point in time it’s going to require congressional attention."..


Here is a story from Denver Dave on the Pension problem:

Dave from Denver…

PBGC bailout on the horizon

Was chatting with a good friend of mine yesterday. He's working on the bankruptcy/liquidation of an auto parts supplier outside of Chicago. Right now he's in the process of transferring the hourly and salaried employee pension plans to the PBGC. To begin with, he said the PBGC people are absolute morons. But more to the point, he said even with the current rally, the funds he's transferring are underfunded by 43%.

Prudential is the plan manager and they are STILL using an 8.5% annual rate of return assumption for their 50/50 fixed income/equity blended model. You can assume that the investment/underfunded profile of this pension plan is going to be consistent across ALL of corporate America. The PBGC will one of the many areas that the Treasury will have either let collapse, which means retirees are in trouble, or monetize with $100's of billions in printed money. May as well hit Home Depot this weekend if they have wheelbarrows on sale - we're all gonna need 'em.


This news tanked the dollar:

Fed mulled increasing Treasury buys: minutes 

WASHINGTON (Reuters) - The U.S. Federal Reserve saw modest improvements in the economic outlook at its April meeting, but mulled increasing purchases of mortgage agency and government securities in the future to give the recovery an additional push, minutes of the meeting showed on Wednesday. 

"Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery," minutes of the April 28-29 meeting said. 

"All members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train before deciding whether to adjust the size or timing of asset purchases," the Fed said. 

In April, the Fed held its target for benchmark interest rates unchanged at close to zero and took no other actions to boost the amount of money in the economy by increasing the size of its balance sheet.


The market sensed that QE is not going to end.  This from Reuters after the release of the Fed Minutes from the Beige Book:


Follow-up: Fed saw some signs of economic stabilization in 2010 
The Fed says the near-term economic outlook had improved modestly since March, though continues to see significant downside risks to the economic outlook, and continue to see a number of factors that will restrain the pace of the recovery. New economic forecast:


This from the National Association of Realtors (as promised a big decline)

US commercial real estate declined in 1st qtr-NAR 

WASHINGTON, May 20 (Reuters) - The U.S. commercial real estate sector declined at the beginning of the year, according to the National Association of Realtors, which said on Wednesday its index of brokerage activity in the sector fell 
4.8 percent in the first quarter from the fourth. 

Activity was also 12.9 percent below the first quarter of 2008, NAR said. 

"Significant job losses have reduced the demand for commercial space, while a lack of credit has stalled transactions and refinancing activity," said the association's chief economist, Lawrence Yun, in a statement. 

"Because commercial real estate always lags an overall economic recovery, it will take some time for the commercial real estate market to rebound," he added. 

The NAR said commercial real estate activity, which encompasses the finished construction of buildings and their sale and leasing, will continue to decline for the next six to nine months.




Here is Bill Holter's daily commentary and today he commented on the huge fall in the usa dollar:


Bill H…

The summer of discontent

To all; the Dollar is breaking down while Gold, Silver (money) and commodities are breaking out to the upside. Maybe, finally, fundamentals are beginning to take over. The big public debate yesterday pertained to California's $43 billion deficit and how it could be closed. Californians voted down 5 of the 6 fiscal responsibility measures. The only one that passed was to prohibit pay raises to public employees.

No matter what combination of measures they use, cutting expenditures, raising taxes, or vice versa, the deficit will not and cannot be narrowed to zero. On the Federal level the situation is obviously more precarious. Tax revenues have absolutely imploded which I believe will soon be seen as the norm rather than a "one off" and short term occurrence. The impossible fiscal situation that we find ourselves in is fact, but "fact(s)" are a funny animal. Even though they "are", until public sentiment deems or acknowledges they "are", facts don't matter.

I believe we are very, very close to facts and reality coming to the forefront and being seen for what they are. We are entering the summer season where several very well respected economic analyst firms have forecast the final swan song for the Dollar. If correct as you know I believe they are, this is BIG, BIG stuff. The repudiation of the Dollar means the end of the world as we have known it for roughly 60 years, every country, corporation, and all individuals will feel the effects.

Unless the Dollar can turn on a dime right here and another rabbit get pulled out of Uncle Sam's hat, this is it. The smoke and mirror short covering rally in the Dollar and equities will be no more than a memory and the so called "green shoots" will be seen for the poison ivy that they are. Keep close watch on the Dollar, Treasuries, and Gold as these are all that count currently. Obviously an Israeli/Iran/US, or Pakistan/India skirmish will exacerbate and accelerate the current move from paper to metals, but even without geo political stress, I believe this summer will finally witness the fundamentals that we all know exist. Many of you remember the rocket ride for precious metals in early 2006, I think what we have in store for summer 2009 will amaze even the most ardent metals bulls. There is simply too much paper that will seek haven in far too little metal. Paper is being created at will while metal production has been declining for 5 years or more, this is the most lethal of combinations for a fiat currency system. Regards, Bill H.


Japan saw a huge contraction in its economy in the first quarter down a full 15.2%.  Generally this means that usa citizens are not in the buying mood.  The green shoots  look like duds:

Japan’s Economy Shrank Record 15.2% Last Quarter

May 20 (Bloomberg) -- Japan’s economy shrank by a record last quarter amid an unprecedented collapse in exports and a drawdown of inventories that could pave the way for a recovery later this year.

Gross domestic product contracted an annualized 15.2 percent in the three months ended March 31, following a revised fourth-quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. Economists predicted the economy would shrink 16.1 percent.



The federal debt continues to rise to 11.293 trillion dollars for a rise of 9 billion for the day.

I am enclosing the bloomberg article on the fed planning to buy more bonds as it continues to quantitive ease.  This sent gold soaring and the dollar plummeting:

Fed Officials Raised Prospect of More Bond Purchases (Update2) 

Share | Email | Print | A A A


By Craig Torres

May 20 (Bloomberg) -- Some Federal Reserve officials judged last month that the central bank may need to boost its purchases of assets to secure a stronger economic recovery, while all policy makers agreed to hold off on such a move at the time.

“Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery,” minutes of the April 28-29 Federal Open Market Committee meeting showed today in Washington. “All members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train” before making a decision.

U.S. central bankers cited a slower pace of contraction in their April statement, leaving the benchmark interest rate trading in a range of zero to 0.25 percent. They cited improved financial conditions, stronger sentiment from businesses and households and expectations of an increase in industrial production to replace inventories.

“Committee members agreed that the Federal Reserve’s large-scale securities purchases were providing financial stimulus that would contribute to the gradual resumption of sustainable economic growth,” the minutes said. “Members also agreed that it would be appropriate to continue making purchases” in the total amount of $1.75 trillion previously announced.

Ten-year Treasury yields fell for the first time in four days on expectations the Fed will purchase more government securities. The yield on the 10-year note fell six basis points to 3.19 percent as of 4:12 p.m. in New York. A basis point is 0.01 percentage point.

Growth Forecast Cut

Fed governors and district-bank presidents cut their projections for economic growth in quarterly forecasts submitted at the meeting. They foresaw a deeper contraction in 2009 and a weaker recovery in 2010, with the unemployment rate projected to remain at 9 percent or higher through next year.

FOMC members also saw “some signs pointing toward economic stabilization,” and some officials detected prospects for “a trough” in the housing market’s downturn.

“The Fed wants to be as flexible as possible because the dynamics of the economy and monetary policy have never been this complex,” said Mark Spindel, who manages more than $100 million at Potomac River Capital LLC in Washington.

Currency Swaps

By unanimous vote, the committee extended currency swaps with the Bank of Canada and the Banco de Mexico for an additional year, beginning in mid-December 2009. The swap with the Bank of Canada is $2 billion, and the swap with Mexico’s central bank is $3 billion. The arrangements are standing programs related to the North American Framework Agreement of 1994, and differ from the temporary swap lines created last year.

A firming in consumer confidence, industrial production and other areas of the economy indicate the worst U.S. recession in five decades may be easing. Output at factories, mines and utilities decreased 0.5 percent last month after dropping 1.7 percent in March, Fed figures showed last week.

“Participants continued to see significant downside risks to the economic outlook,” the minutes said. “While financial strains and risk spreads had lessened somewhat over the intermeeting period, participants agreed that the global financial system remained vulnerable to further shocks.”

A gauge of confidence among U.S. consumers rose to 67.9 in May from 65.1 in April, according to the Reuters/University of Michigan preliminary index of consumer sentiment. Payrolls shrank last month by the least since October, falling 539,000 after declining 699,000 in March.

Economy Contracting

The economy is contracting at a 1.1 percent annual pace in the second quarter, according to estimates from Macroeconomic Advisers LLC, compared to a 6.1 percent annual rate of decline in the first three months.

Central bank governors and regional bank presidents presented a new set of forecasts at the April meeting. Their central tendency ranges project the economy will shrink 1.3 percent to 2 percent this year and grow 2 percent to 3 percent in 2010. That compares with forecasts in January of a contraction this year of 0.5 percent to 1.3 percent and growth of 2.5 percent to 3.3 percent for 2010.

The officials forecast inflation, minus food and energy, will rise 1 percent to 1.5 percent this year and 0.7 percent to 1.3 percent next year. That compares to a January core personal consumption expenditures price index forecast of 0.9 percent to 1.1 percent for 2009 and 0.8 percent to 1.5 percent in 2010.

Unemployment Rate

Central bankers forecast the unemployment rate at 9.2 percent to 9.6 percent this year and 9 percent to 9.5 next year. That compares with forecast ranges of 8.5 percent to 8.8 percent for 2009 and 8 percent to 8.3 percent for 2010 in January.

The Fed has expanded assets on its balance sheet by $1.3 trillion over the past year to $2.2 trillion to replenish liquidity, narrow credit spreads and support borrowing and spending.

“It is about time for the financial markets to stand on their own to a greater degree than they have,” Catherine Mann, an economics professor at Brandeis University and former Fed Board economist, said in a Bloomberg Television interview.

“So long as the Federal Reserve sits as a backstop, as the buyer of last resort, or buyer of first resort in some cases of these assets, then the financial system really won’t get back into the game,” she said.

The central bank said yesterday that in July it will begin accepting commercial mortgage-backed securities issued before Jan. 1 into the Term Asset-Backed Securities Loan Facility, which provides financing to investors in asset-backed securities backed by consumer and business loans.

Profit Growth

The Standard & Poor’s 500 index is up about 18 percent in the past two months on forecasts for better profit growth in quarters ahead.

The cost of three-month dollar loans between banks in London has fallen for more than a month to 0.72 percent from 1.42 percent on Dec. 31, 2008, as confidence in financial institutions improves. The cost of a 30-year fixed rate U.S. mortgage fell to 4.86 percent on May 14 from 5.1 percent at the start of the year, according to Freddie Mac’s poll of a 125 lenders.

The Fed’s securities purchase program hasn’t prevented yields on U.S. notes from rising. Ten-year Treasury yields are up from 2.53 percent March 18 when the central bank said it would buy $300 billion of government debt over six months.



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