Saturday, May 30, 2009

May 30.09 commentary..extremely important

 
Good morning Ladies and Gentlemen:
 
I ask that all to read this very important paper by fellow Canadian, Rob Kirby:
 

U.S. Gold, Going or Completely Gone?

By Rob Kirby

 

This past Tuesday evening I found myself reading a snippet from Enrico Orlandini’s,DTAnalysis [DT stands for “Dow Theory”] - where Mr. Orlandini opined,

"I believe the [U.S.] trade gap will surprise people and continue to shrink and may even turn positive for the first time in decades. Unfortunately, this will only facilitate the flow out of the US dollar and bond and that’s not a good thing.”

With Enrico being “technically oriented” and me being more fundamentally oriented, I recall how I intuitively did not believe the U.S. Census Bureau’s published U.S. Trade numbers and how I might go about proving that they were falsified:

My primary field of research is focused on precious metals; namely, gold and silver, and I know that recent reports indicate that various countries are contemplating repatriating their sovereign gold reserves. Further, the U.S. Treasury and Federal Reserve have balked atGATA’s recent Freedom of Information [F.O.I] requests and demands for an independent, verifiable audit of the Sovereign U.S. Gold Reserve – thus a little bit of forensic investigation of U.S. gold exports was in order.

I just needed to figure out how to access the relevant numbers.

The United States Geological Survey [USGS] publishes monthly Mineral Industry Surveysdesigned to provide a macro-import/export-overview of the U.S. precious metals [gold] industry. The data in these surveys is supplied to the USGS principally by industry trade groups such as the World Gold Council as well as official sources like the U.S. Census Bureau:

source: USGS Feb. 09 Mineral Industry Survey

I took special note of how 2,920 metric tonnes of “Gold Compounds” had been exported from the U.S. in 2008. This number seemed BIGGER than BIG – because the U.S is only alleged to have stockpiles of sovereign gold of 8,100 metric tonnes while annual U.S. mine production of gold is roughly 228 metric tonnes. This figure of 2,920 metric tonnes is equal to 36 % of all alleged sovereign U.S. gold stocks or more than 14 times annual U.S. gold mine production. So, I was left wondering, “just what is/are ‘gold compounds’?

I contacted the USGS and queried a qualified individual [who had working knowledge of this data stream] about the definition of “Gold Compounds”. I was told that, according to the U.S. Census Bureau – who supplies not only the definition but the actual reported numbers, gold compounds were typified by industrial type products containing low percentages/amounts of actual gold content – like gold paint.

I then reasoned with the USGS person, if such were the case, why would U.S. exports have increased in 2008 to nearly 3,000 metric tonnes [when the Global Economy was slowing and the U.S. Dollar was strong] from 2007, when U.S. exports totaled approximately 2,000 metric tonnes [when the U.S. Dollar was weaker and the Global Economy was booming]? I noted that this was counter-intuitive and made no fundamental economic sense:

source: USGS Feb. 08 U.S. Mineral Industry Survey

When confronted with reason, the individual for the USGS agreed that the data, as published, did not make logical sense and explained that the U.S. Census Bureau was questioned as to the veracity of this particular line item in their data.

I asked the USGS employee if the gross weight or the gross value [not shown in the table but known to the USGS] of the “Gold Compounds” was queried.

The individual confirmed that their query to the U.S. Census Bureau dealt with the gross value being assigned to these exported goods.

I responded rhetorically, “being an issue of gross value – then let me guess that the U.S. Census Bureau is assigning an astronomically high value to these goods. Such a high value would be COMPLETELY INCONSISTENT with what the U.S. Census Bureau claims these items are- namely, industrial goods. The values being reported would be more in line with these goods being gold bullion or equivalents.

The individual from the USGS confirmed my reasoning when he responded, “that would be CORRECT”.

The Implications

Ladies and gentlemen, the foregoing data and discussion with the USGS individual is proof that the United States of America [or criminal elements within its Treasury and/or The Federal Reserve] “HAS” surreptitiously exported physical gold - and continues to do so. It is confirmed. The exports are likely coin melt [or gold compound, if you prefer] from the great gold confiscation back in 1933; or alternatively, this terminology is being used to disguise physical repatriation of foreign gold bullion formerly on deposit with the N.Y. Federal Reserve. Such repatriations are recorded as “exports” in U.S. Trade data. Public acknowledgement of same would scream like a siren call that the global financial community has totally lost faith in American financial stewardship – hence the need to do so on the sly.

This is being done in a vain/desperate/losing battle to satiate “off the charts” global demand for physical gold bullion arising from the profligacy of the American Empire’s two previous Administrations and to prop up the failing U.S. Dollar.

Over the course of 2007 / 2008 – more than 5,000 metric tonnes of “Gold Compounds” have been exported from the United States of America representing more than 62 % of reported sovereign U.S. gold reserves or about 24 times annual U.S. mine production.

5000 metric tonnes = 160 753 733 troy ounces [$128 billion+ at today’s prices]

The fact that industry funded trade groups like the World Gold Council and other professional gold consultancies, who shall remain nameless, have not reported these facts negates their credibility and illuminates them as dupes or willing shills. These fraudulent or ignorant organizations deserve to be shuttered and disbanded.

U.S. Trade Data Is Bogus

The value of these bullion exports significantly “skew” the doctored U.S. Trade numbers [coincidentally, also prepared by the U.S. Census Bureau] in an attempt to convey a picture that the U.S. financial position is improving.

The reality is this, when gold exports are backed-out, the U.S. Trade picture is decidedly worse.

The United States of America claims to possess a little more than 8,100 metric tonnes of sovereign gold stored principally at Fort Knox, Kentucky, West Point, N.Y., the Denver Mint and The New York Fed. The sovereign U.S. gold reserve has not been independently audited since the 1950’s during the Eisenhower Administration. GATA’s freedom of information requests are all about ensuring that the 8,100 metric tonnes of U.S. sovereign gold is still owned by the U.S.

In April, 2008 the Federal Reserve responded to GATA’s request, releasing hundreds of pages of worthless information with significant portions redacted. They also claimed that they were withholding hundreds of additional pages of documents. The status of the withheld documents is currently under appeal.

These stonewalling tactics – withholding details - are eerily similar to those employed by Messer’s Bernanke, Paulson and Geithner refusing to divulge frank details as to “who” the beneficial recipients were of TARP and TALF funds.

No credible audit of the Sovereign U.S. Gold Reserve will EVER be allowed – because the gold is simply not there.

Hope you have some.

Rob Kirby is proprietor of Kirbyanalytics.com and sales agent for Bullion Custodial Services. Subscribers to the Kirbyanalytics newsletter can look forward to a weekend publication analyzing many recent global geo-political events and more. Subscribe to Kirbyanalytics news letter here. Buy physical gold, silver or platinum bullion here.

end.

 

As many of you know, this is an area that Reg Howe, Don Jack, and others follow very closely.  Generally speaking, the usa when it exports gold, the gold exported comes from the Federal Bank of NY.  This bank houses foreign gold or what we term  "ear marked' gold.  We have been reporting for over 6 years gold leaving usa shores being repatriated to their foreign home.Generally speaking,  100% of ear-marked gold exports are derived from the Bank of NY.

 

In or around 2003-2005 total foreign gold held by the usa totalled around 6900 tonnes of gold. That total has steadily declined to around 6300 tonnes of gold.  For 2008 year, a total of 220 tonnes of ear-marked gold was repatriated to their rightful sovereign holders.

 

Now, the usa has released export data and for the first time ever, the term  "gold compound" was used.

First, a little background information:

 

The usa is the only country in the world with official gold not of "good delivery" gold.  By good delivery we mean .999 gold.  In 1933 the usa confiscated gold from its citizenry and then melted down all the coins into bars. They also used the gold coins not sold yet as they too were melted down.  The usa gold is of .9000  qualtity.  Generally, the rest of the world uses .91 in fineness for  gold coins, so the term for coin-melt gold is generally perceived as either .90 gold ( or .8999)  or .91 gold.  The usa is .90 gold.  The usa did not bother to purify the gold on hand to .999 gold, however the true weight of gold was accurate.  In other words the total weight of the bar was 110%.  If a bar had 100 oz of gold, the total weight of the bar was  110 oz.

In 1937, all of this coin-melt gold entered into its new home, Fort Knox, in Kentucky.  The facility took over 3 years to build.

 

It now looks like the usa is exporting gold, not from the Republic Federal Bank of NY but from Fort Knox itself, the home of coin-melt.

The usa is trying to hide data from all of us as they know we monitor the NY bank regularly.  We were quite surprised to see that gold had stopped moving out of usa shores at the conclusion of 2008.  We were aware that Germany had wanted its gold back but it was not forthcoming.

 

From   2007 and 2008, over 5000 tonnes of  gold compound was exported from the usa.  It was confimed by the Census people that the dollar value was huge. The usa holds a supposed total of 8100 tonnes of gold. It is also clear that export dollars from gold sales have helped the usa in their trade report.

 

LADIES AND GENTLEMEN;  GOLD HAS LEFT FORT KNOX.   This is why the refiners are working overtime in Europe.

This activity by the usa treasury is criminal. Only an act of congress can authoritze gold sales.  I urge you to read and re-read Kirby's paper!!

OK lets go on to my regular commentary:

 

Gold closed up by 17.60 to 979.00.  Silver advanced a further 47 cents to 15.67

The open interest on the gold comex fell by 6000 contracts as some nervous nellies departed the scene.  Over on the silver side of things, speculators piled on  rising a cool

2000 contracts to 102,000. The longs are comfortable in taking on JPMorgan and HSBC.

 

The dollar tanked big time yesterday falling a big 1.13 to 79.33.  All the energy yesterday was done to prop up two elements of the economy:

 

1. the bonds

2. the stock market.

 

As I pointed out to you, the long bond at 116 was a trigger point which would have commenced the melting of derivatives at JPMorgan.  The banking community called on its rescue and all printed money was called upon to prop up the bonds and the falling stock market.  The long bond rose from 116 to 119.3 and the 10 yr yield fell from 3.75% to around 3.46%.  The Dow rose by 96 points.The Dow was even at 3;30 so a patented Hail Mary play drove the dow up. The usa authorities wanted to enter the weekend on a positive note.

The cartel then ran out of printed money and as such, gold rose and the dollar tanked as their was insufficient reserves on hand to prop up the dollar.

This from Ambrose Pritchard-Evans:

By Ambrose Evans-Pritchard
Last Updated: 5:51AM BST 29 May 2009

"We could be nearing the end-game for the US dollar but the Fed has little choice at this point. We're in a vicious circle where any policy aimed at supporting the US economy must be at the expense of the dollar." And: "Beijing is clearly losing its patience with the Fed's policy of printing paper, seen as a form of stealth default. There is some risk that further moves to step up quantitative easing could cause China to boycott US Treasury auctions."

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance
/5402260/Bond-markets-defy-Fed-as-Treasury-yields-spike.html

-END-

And now for some economic news:

 

First quarter GDP sourced badly:

U.S. GDP falls 5.7 pct in Q1 

WASHINGTON, May 29 (Reuters) - The U.S. economy contracted slightly less than initially estimated in the first quarter, while corporate profits rebounded, according to a Commerce Department report on Friday that hinted that the recession was moderating. 

Gross domestic product, which measures total goods and services output within U.S. borders, dropped at a 5.7 percent annual rate, the department said, less than the 6.1 percent estimated by the government last month. 

The revisions were below market expectations for a 5.5 percent contraction for the January-March quarter. 

Output has declined for three straight quarters for the first time since 1974-1975. 

The Commerce Department's preliminary report also showed corporate profits after taxes increased 1.1 percent in the first quarter, the first increase in a year, after plummeting 10.7 percent in the fourth quarter. Analysts polled by Reuters had forecast profits dropping 7 percent…

-END-

This next number is horrifying..the Chicago Purchasing Managers Index.  It plummeted in May from a consensus 42 to 34 signalling the mid-west business activity is falling pretty hard:

09:45 May Chicago Purchasing Manager's Index 34.9 vs. consensus 42.0
Apr reading was 40.1. 
* * * * * 

U.S. Midwest business activity falls hard in May
 

CHICAGO, May 29 (Reuters) - Business activity in the U.S. Midwest contracted in May at a much more severe rate than expected, reversing an unexpectedly strong result last month, a report showed on Friday. 

The Institute for Supply Management-Chicago business barometer fell to 34.9 in May from 40.1 in April. 

Economists had forecast the index at 42.0. A reading below 50 indicates contraction in the regional economy. 

The employment component of the index fell to 25.0 from 31.8 in April. New orders slipped to 37.3 from 42.1 but production was steady at 38.1. Prices paid rose to 29.8 from 28.4.

-END-

The Michigan confidence number hardly budged from the previous month:

 

09:55 May Univ. of Michigan Confidence 68.7 vs. consensus 68.0
Prior reading was 67.9. 

end

The Wall Street Journal reports on a surge in mortage rates, somethig that the Obama administration is loathe to hear:

 

21:33 WSJ discusses the surge in mortgage rates
Citing a survey by HSH Associates, the Journal notes that the average rate for 30-year fixed-rate loans jumped to 5.44% on Thursday, the highest level since early February. The rate was up from 5.29% on Wednesday and 5.03% on Tuesday. The paper adds that higher rates are likely to put more pressure on home prices and sales, citing estimates from Credit Suisse that a 10 bp increase in mortgage rates is equivalent to a 1% increase in home prices. The article goes on to highlight anecdotal evidence surrounding a recent drop off in mortgage applications.
Reference Link (subscription required) 

end

Bix Weir comments on the pending GM bankruptcy and what will happen to suppliers.  He believes that they too will be forced into receivership.  I believe he is correct:

Here's the latest article about auto suppliers about to fail...

http://www.bloomberg.com/apps/news?
pid=20601103&sid=aOh0v_R7K06M&refer=news 

Personally, I believe most if not all of the suppliers and auto makers will be forced into bankruptcy due to their inner connectivity. 

The reality is that they are ALL needed to produce autos because EVERY part of a car is needed to complete the car for sale from the engine to the ash tray. 

Make no mistake, the ramifications of a global auto meltdown are on par with the Banking meltdown. The cascade of defaults will quickly spread to the general economy and especially the banking sector and we are acutely familiar with the fragility on that front. 

Far be it for me to be an alarmist but things are about to get VERY ugly so if you have a bunker it's time to dive in! 
Bix 

PS - It is rumored that the Credit Default Swaps written against GM are in the $Trillions and mostly backed by AIG. No one can verify this because CDS's are private contracts written without a clearing house to track volumes.

end.

The following is a commentary on what the increase in debt is doing to households:

Leap in U.S. debt hits taxpayers with 12% more red ink 

By Dennis Cauchon, USA TODAY
Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows.
The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security.

That's the biggest leap in the long-term burden on taxpayers since a Medicare prescription drug benefit was added in 2003.

The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That's quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

"We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it's not backed up by a house," says David Walker, former U.S. comptroller general, the government's top auditor.

USA TODAY used federal data to compute all government liabilities, from Treasury bonds to Medicare to military pensions.

Bottom line: The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion.

The numbers measure what's needed today — set aside in a lump sum, earning interest — to pay benefits that won't be covered by future taxes.

Congress can reduce or increase the burden by changing laws that determine taxes and benefits for programs such as Medicare and Social Security.

Rep. Jim Cooper, D-Tenn., says exploding debt has focused attention on the government's financial challenges. "More and more, people are worried about our fiscal future," he says.

Key federal obligations:

• Social Security. It will grow by 1 million to 2 million beneficiaries a year from 2008 through 2032, up from 500,000 a year in the 1990s, its actuaries say. Average benefit: $12,089 in 2008.

• Medicare. More than 1 million a year will enroll starting in 2011 when the first Baby Boomer turns 65. Average 2008 benefit: $11,018.

Retirement programs. Congress has not set aside money to pay military and civil servant pensions or health care for retirees. These unfunded obligations have increased an average of $300 billion a year since 2003 and now stand at $5.3 trillion.

-END-

 

Japan's exports are now starting to rebound as China is demanding such amount of goods to satisify its citizenry:

Japan’s Industrial Production Surges Most in 56 Years

May 29 (Bloomberg) -- Japan’s industrial output surged the most in 56 years in April as a rebound in exports helped the economy emerge from its worst recession since World War II.

Production rose 5.2 percent from March, the second monthly gain, the Trade Ministry said today in Tokyo. The increase was faster than the 3.3 percent economists estimated, and companies said they planned to boost output in May and June as well.

http://www.bloomberg.com/apps/news?
pid=20601087&sid=ahEPo3B.gkfM&refer=home

 

end.

Chinese citizenry are now hoarding gold like their is no tomorrow:

Gold fever grips Chinese investors

By Wang Ying (China Daily)
Updated: 2009-05-29 09:38

Bitten by the gold bug, Chinese investors are now rushing to hoard the yellow metal as fears over the global recession deepen.

The increased sales of gold bars and gold jewelry in Shanghai, Beijing, Guangzhou and other large cities are reflected in the precious metal's price surge on the Shanghai Gold Exchange (SGE), which trades in gold contracts for forward deliveries. Gold prices quoted on the SGE have increased by an average 6.74 percent in the past month to the current level of about 209 yuan a gram.

http://www.chinadaily.com.cn/bizchina/2009-05/29/content_7952537.htm

 

end.

And now , I will give you my report on the gold delivery for June.

I promised to you that I would have a clearer picture on Friday.  I will need Monday's data to give definitive results.

However, as of this weekend, let me give you what we know.

 

The first day delivery on gold comex was only 151000 oz which is very small.  There is also another 1.0 million oz left to be hit.

 

However there is another figure that is not in the equation yet and that is the options exercised to get a gold comex contract.  We know that 38000 option contracts were exercised on Tuesday night.

That represents 3.8 million oz.  What we do not know is how many of those rolled into an August contract or how many stayed behind and waited for delivery.  We will know Monday afternoon.  It could be zero oz up to the entire 3.8 million oz.

 

Let wait and see and then I will report on its significance.

I wish you all a grand weekend.

 

Harvey.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thursday, May 28, 2009

May 28,.09 commentary.

 
Good evening Ladies and Gentlemen:
 
Gold closed up by 8.30 to 991.30.  Silver broke through the 15.00 dollar barrier closing up by 30 cents to 15.16.  The open interest on the gold comex rose by 1300 contracts
to 398300 as speculators continually take on the cartel.  The silver OI rose dramatically up by 2500 contracts to 100,000 as speculators smelled blood in the water.  Yesterday at the conclusion of the May silver month 590,000 oz still had to be delivered upon.  There is no question of problems with silver delivery as the spot month trades higher than future months.
 
Bond yields were all over the map today.  The long bond fell briefly below the 116.00 level before recovering a bit.  However mortgage bonds continue to deteriorate in price:
 

Mortgage-Bond Yields Jump, Jeopardizing Fed’s Housing EffortMay 27 (Bloomberg) -- Yields on Fannie Mae and Freddie Mac mortgage bonds rose for a fourth day, after exceeding for the first time yesterday their levels before the Federal Reserve announced it would expand purchases to drive down interest rates on loans.Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds climbed to 4.55 percent as of 3:15 p.m. in New York, the highest since Dec. 5 and up from 3.94 percent on May 20, data compiled by Bloomberg show…-END-

 

This did not go unnoticed.  As bond yields rose, the dollar swooned. This caused gold and silver to rise setting up a monstrous battle for 966.00 gold.  This is a major resistance level.  If this is broken we will see 1000 gold shortly. The spread between the 2 year treasury and  10 yr treasury continues to rise signalling hyperinflation risk:

VERY GOLD AND SILVER friendly…May 27 (Bloomberg) -- The difference in yields between Treasury two- and 10-year notes widened to a record on concern surging sales of U.S. debt will overwhelm the Federal Reserve’s efforts to keep borrowing costs low.The so-called yield curve steepened to 2.75 percentage points, surpassing the previous record of 2.74 percentage points set on Aug. 13, 2003. Yields on 10-year notes have risen more than 100 basis points since Fed officials said in March they would buy up to $300 billion of U.S. debt over six months to drive consumer rates down and lift the economy from recession.

end

OK lets go for some economic news.

 

First the jobless claims came out and it continues to show weakness in the economy:

U.S. economic news:

08:30 Jobless claims for w/e 23-May reported 623K vs. consensus 628K
Prior week revised to 636K from 631K. Continuing claims for w/e 16-May reported 6.788M vs. consensus 6.745M. Prior week revised to 6.678M from 6.662M. 
* * * * * 

U.S. jobless claims fell 13,000 last week 

WASHINGTON, May 28 (Reuters) - The number of U.S. workers filing new claims for jobless pay dropped by 13,000 last week, the Labor Department reported on Thursday, but so-called continued claims hit a new record as the recession took a further toll on job prospects. 

Initial claims for state unemployment insurance benefits declined to a seasonally adjusted 623,000 in the week ended May 23 from a revised 636,000 in the prior week. It was the second straight week in which initial claims fell.

 

end

Durable goods rose by 1.9%. However on closer examination, the previous month saw a drop of 2.1% so the gain was really small:

U.S. durable goods orders rise 1.9 pct in April 

WASHINGTON, May 28 (Reuters) - New orders for long-lasting U.S. manufactured goods rose more than expected in April, posting their biggest gain in 16 months, according to government data on Thursday that suggested the recession was winding down. 

April's 1.9 percent increase was the biggest percentage advance since December 2007, when orders rose 4.1 percent, the Commerce Department said. 

However, March orders were revised sharply lower, falling 2.1 percent from the previously reported 0.8 percent decline. 

Analysts polled by Reuters had expected overall new orders to rise 0.4 percent in April, and orders excluding transportation to ease 0.3 percent. 

New orders excluding transportation climbed 0.8 percent in April after declining 2.7 percent in March, boosted by orders for communications equipment, machinery and fabricated metal products. 

However, there were some dark spots in the report. Civilian aircraft and parts tumbled 6.8 percent after surging 7.5 percent in March. 

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 1.5 percent in April. The prior month was revised to show a 1.4 percent decline, previously reported as a 0.4 percent gain.

-END-

Here is what one commenator had to say on the durable goods report:

Durable goods data clarified:

To begin with, the Commerce Dept reported durable goods orders to be up 1.9% for April. What they buried in the report was that the March number was revised down from the originally reported -.8% to -2.1%. That alone makes the April number look less impressive, as the "gain" comes from a reduced level the previous month. More interestingly, and I can guarantee you that CNBC will not mention this, nor will your daily newspaper report this tomorrow moring, Year over Year, April durable goods orders DECLINED A STAGGERING 26.6%. Take that into account the next time you read about green shoots.

***

end

New USA home sales rose by paltry .3% for the month of April:

U.S. new home sales rose 0.3 percent in April 

WASHINGTON (Reuters) - Sales of newly built U.S. single-family homes rose slightly less than expected in April, a government report showed on Thursday, and the previous month's figures were revised down to show a steeper fall. 

The Commerce Department said sales rose 0.3 percent to a 352,000 annual pace, from a downwardly revised 351,000 in March. March sales were revised to show a 3 percent decline, which had been reported as a 0.6 percent slide. 

Economists polled by Reuters had forecast sales at a 360,000 rate in April. 

The median sales price in April fell 14.9 percent to $209,700 from a year earlier, the department said. The median marks the half-way point, with half of all houses sold above that level and half below. However compared to March, the median price was up 3.7 percent, the biggest increase since November. 

The inventory of homes available for sale in April fell 4.2 percent to 297,000, the lowest level since May 2001. April's sales pace left the supply of homes available for sale at 10.1 months' worth, the lowest since a matching reading in July. 

end

Ql mortgage delinquency rose by 8.22% :

10:01 Q1 mortgage delinquency rate 8.22% vs. 8.63% in Q4 and 5.64% y/y
California, Florida, Arizona, and Nevada accounted for 46% of foreclosure starts in Q1. 

end

One in 8 mortgage holders are late paying or in foreclosure.  Here is an article on this subject:

1 in 8 US homeowners late paying or in foreclosure 

NEW YORK, May 28 (Reuters) - One out of eight U.S. households with a mortgage ended the first quarter late on loan payments or in the foreclosure process, in a crisis that will persist for at least another year until unemployment peaks, the Mortgage Bankers Association said on Thursday. 

U.S. unemployment in April reached its highest rate in more than a quarter century and is still rising, helping propel mortgage delinquencies and foreclosures to record highs. 

Such economic conditions drove up foreclosures of prime fixed-rate mortgages, which represented the largest share of new foreclosures for the first time since the rapid growth and the ensuing collapse of the subprime loan market. 

"We clearly haven't hit the top yet in terms of delinquencies or the bottom of the housing market," Jay Brinkmann, the group's chief economist, said in an interview. 

"The housing market depends on the employment situation," he said, "and we don't expect employment to bottom out until the middle of next year so then normally housing would not recover until after employment recovers." 

A record 12.07 percent of loans on one-to-four unit residences were at least one payment past due or in the foreclosure process in the first quarter, on a non-seasonally adjusted basis. 

Foreclosure actions were started on an all-time high 1.37 percent of first mortgages in the quarter, a record increase from 1.08 percent the prior quarter. 

The share of loans in the foreclosure process rose to a record 3.85 percent from 3.30 percent in the fourth quarter and 2.47 percent a year earlier. 

California, Florida, Arizona, Nevada accounted for nearly half of the new foreclosure activity in the quarter, and half of the increase in prime fixed-rate foreclosure starts. 

Those severely hit states, the biggest winners in the five-year housing boom earlier this decade, continue to worsen as recession overtakes problems spawned by lax lending standards. 

"Every job loss, every divorce, every incident like that is going to be turning into a foreclosure because they are so far under water with the homes already," Brinkmann said. 

When a house is "under water", it means the price has fallen below the size of the mortgage. 

On a non-seasonally adjusted basis, the delinquency rate dipped to 8.22 percent from 8.63 percent. 

The MBA noted that the late payment rate always declines in the first quarter due to seasonal factors, and said that after such adjustments, the rate jumped to a record 9.12 percent. 

–END-

This next story really tells what is going on. Commercial paper outstanding dropped again and it is at the lowest point in 8 years.  If the economy had green shoots we would see commercial paper rising and not contracting.  Here is this very important article:

US commercial paper outstanding lowest in 8 yrs-Fed

NEW YORK, May 28 (Reuters) - The U.S. commercial paper market contracted to the lowest level outstanding in eight years, eroded by the global credit crisis and prolonged economic downturn, Federal Reserve data showed on Thursday. 

For the week ended May 27, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, fell by $35.9 billion to $1.248 trillion, the lowest since 2001 according to Reuters EcoWin data and down from $1.284 trillion the previous week. 

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

 

end

Here is a Bloomberg article that you should read:

U.S. Bubble Collapse to Be Worse Than Japan’s, CLSA’s Wood Says

Feb. 23 (Bloomberg) -- The U.S. is facing a deflationary collapse more severe than the crash that hobbled Japan’s economy in the 1990s, leaving gold as the only defensive play for investors, according to CLSA Ltd.’s Christopher Wood

http://www.bloomberg.com/apps/news?pid
=newsarchive&sid=aU6QD7.BBkO8

 

end.

 

Bill Holter comments on the huge spread in the 2 yr to 10 yr bonds:

 

Bill H:

What does it mean?

To all; the long end of the Treasury curve has cracked wide open with the 2yr/10yr spread gaping to an all time high. What does this mean? Well, as in all things financial today, there are two sides to the story. On one side you have the Muppet brigade telling you that longer rates have gone higher because of a perceived "green shoots" turnaround and future growth in the economy. Fear is subsiding they say.

They will also tell you how wonderful this is because the banks can borrow short term at very low rates and lend long term at higher rates, thus raking in the "dough". (It should be noted that many past banking crack ups have occurred with this exact same formula once short term rates began to rise and exceeded the earlier long term rates that banks had already lent at).

On the other hand you have reality! The current reality is that the world is already over leveraged and in the middle of a debt deflation and credit contraction. Any and every financial entity on the planet from first time home buyers to the largest debtor (U.S. Treasury) will not benefit from higher rates. Savers may benefit some, but come to think of it I don't know any of these rare birds as most of them reside in Asia. Borrowers with adjustable rates will certainly not benefit, new borrowers will not be happy and needless to say Uncle Timmy and the rest of the Treasury must be close to fainting with sticker shock now that borrowing costs are 20% higher than last month As a side note, what do you suppose higher rates will do to the gigantic bond portfolios that investment banks, brokers, mortgage banks and even Central Banks are holding?

But here is the rub, haven't we been told that "green shoots" are sprouting and the credit markets are thawing? And aren't higher interest rate supposed to be bad for growth? So if I have this correct in my mind, interest rates (market rates, not the fake rates created by the Fed) are rising during the biggest credit contraction in history at the same time our currency looks like the beginnings of a "perfect 10" swan dive. This is not good at all! The market place is even apparently selling into the bids provided by the Federal Reserve. (Who said the bond vigilantes were gone?)

So rates are rising while 1 out of 8 U.S. homeowners are at least one month behind on their mortgage payment.http://www.reuters.com/article/bonds
News/idUSN2832609020090528
In the past, capitalism would be pushing rates down in a sort of "self fixing" fashion. Inherent in TRUE capitalism is the market place being able to "self right" itself, apparently this mechanism no longer works. It no longer works because the government has meddled in so many markets to such a degree that what we now call capitalism is really nothing of the sort. The system we have today is very similar to what the USSR and China had when the government decided the "highest and best use of capital". In other words, SOCIALISM!

The new reality of rising interest rates is actually the early signs of the marketplace sniffing out hyperinflation. These higher rates will kill any real or perceived green shoot along with many individuals, corporations, and even municipalities and states that are hanging on by a thread waiting for the "good ole days" to arrive. Higher rates during a debt contraction will kill everything except a Central Bank that has Gold backing its money but their is no such entity today.

Jim Sinclair has spoken many times about hyperinflation being a monetary event not an economic one, I think he is exactly correct. What he has prophesied is unfolding before our very eyes. What WAS the perceived safest assets on the planet (long term U.S. Treasuries) are being vaporized on a daily basis in a "run" out of all things paper. There IS only one place left to hide. Yes, you guessed it! Precious metals, those barbaric relics that governments had hoped mankind would totally forget about. Apparently investors have a longer memory than is desirable and now the problem is that there is not enough of this barbaric stuff around. Making matters even worse, no one really bothered to look for any over the past 10-20 years which means production will shrink. WOW, what a recipe for rocket fuel! Regards, Bill

Today there is a new bullion ETF patterned after Central Fund of Canada called the Claymore Fund.

They have just raised 400 million dollars and they are now starting to search for physical silver and gold.

They may mind the task difficult.

 

Got to go

 

see you on Saturday;

Harvey

 
 



 

 

Wednesday, May 27, 2009

May 27.09 commentary.

 
Good evening Ladies and Gentlemen:
 
Gold closed unchanged today but silver had a stellar day up by 17 cents to 14.86 closing in on 15.00.
 
The open interest on gold comex closed up by 202 contracts to 397000.  However the silver Oi rose big time up a whopping 1300 contracts to 98000.
 
The problem in silver surfaced late in the day when it was disclosed that 118 May silver contracts have not been delivered upon. This represents 590,000 oz of silver. This is very unusual for this to happen and investors jumped on the silver bandwagon.  Here is the story:
 

SILVER ALERT

There are 118 open silver contracts in the May contract (the Comex website shows 119, but our futures broker said the number is 118). This is an unusually high amount given that today is last trading day, tomorrow is last notice for delivery day and Friday is last delivery day. We are still waiting for notice on our 1 measly contract. Our broker, RJ O'Brien, said that there's "chatter" in his back office that we may see cash settlement offers by the end of the day today. Apparently the bottleneck in delivery is with HSBC. This could get interesting and may be why silver is strong relative to gold today. I just noticed that spot and July silver are trading at parity right now, after having been in slight contango (spot trading below the futures prices, which is how a healthy, normal futures market functions) for the past few weeks.

This experience with the Comex reinforces my belief that the reported gold and silver inventory on the Comex is fraudulent and, even more so, that the reported inventory with GLD and SLV are completely fraudulent. I can not believe some of the big holders of GLD like John Paulson or Greenlight Capital do not hold GLD accountable. GLD will be the next Enron/AIG.

***

end

 

The big news came in the bond arena.  The long bond closed down a full 2 points to 116.2  The 10 yr treasury yield rose significantly and it is now trading at 3.74% yield.  The spread for the 10 yr over 2 yr treasuries showed the biggest gap in many years at 273 basis points.  Generally this is a harbinger for massive inflation.  This is the story:

Wednesday, May 27, 2009

Playing Mortgage Chicken, 2s10s About To Breach Wides

Posted by Tyler Durden at 1:42 PMFirst Treasuries have gotten walloped, to far beyond pre QE levels (the 10 UST is getting monkeyhammered as I type, see below), next the 2s10s curve has steepened to almost record levels (at 271 bps recently, record wide at 273 bps, a mere 2 bps away), and now the pain is slowly shifting into mortgages. Despite the successful sale of $35 billion of 5 year notes at 2.31% on demand mostly by foreign central banks (who presumably aren't too excited about seeing the Fed overtake them as the biggest US global) credit , the farther end of the curve keeps bleeding on questionable demand, and the 10 Year UST vs the FNMA 30 Year Current Coupon has gotten so uncomfortably tight, that in the ongoing game of bond chicken played between Bernanke and the market the first to blink could well suffer irreparable harm.http://zerohedge.blogspot.com/2009/05/playing-mortgage-chicken.html

end

The Dow finished the day down 173 points as many saw the bond auction today as unsettling.  Even though CNBC claimed that the auction went well, the bonds tanked right after the announcement of a good bid to cover ratio.  I guess the government was the big buyer of the bonds. Here is the story:

Yield Curve Steepens to Record as Debt Sales Surge (Update1) 
By Dakin Campbell

May 27 (Bloomberg) -- The difference in yields between Treasury two- and 10-year notes widened to a record on concern surging sales of U.S. debt will overwhelm the Federal Reserve's efforts to keep borrowing costs low.

The so-called yield curve steepened to 2.75 percentage points, surpassing the previous record of 2.74 percentage points set on Aug. 13, 2003. Yields on 10-year notes have risen more than 100 basis points since Fed officials said in March they would buy up to $300 billion of U.S. debt over six months to drive consumer rates down and lift the economy from recession.

"The markets are starting to grapple with the issue of what happens when the Fed exits and the Treasury needs to continue at the same pace," said David Greenlaw, the chief financial economist in New York at Morgan Stanley, one of the 16 primary dealers that trade with the Fed and are required to bid at government bond auctions.

Treasuries fell for a fourth day amid concern record supply will overwhelm investor demand as the economy begins to show signs of stability. The U.S. will likely sell $3.25 trillion of Treasuries in the fiscal year ending Sept. 30 to fund bank bailouts, stimulus spending and a record budget deficit, according to primary dealer Goldman Sachs Group Inc.

Ten-year notes have lost 10.3 percent this year, according to Merrill Lynch & Co. indexes, while 30-year bonds have lost 27.5 percent. Two-year notes have gained 0.2 percent.

'Convexity Selling'

Rising 10-year Treasury yields are pushing yields on mortgage bonds higher, prompting holders of the securities to sell government debt used as a hedge to protect portfolios against rising interest rates.

As mortgage rates rise, the expected average lives of mortgage bonds and mortgage-servicing contacts extend as potential refinancing drops, leaving holders with portfolios of longer-than-anticipated durations. Duration is a measure of bond price sensitivity to interest-rate change.

"The back-up is mostly related to convexity selling by mortgage investors," said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG's Private Wealth Management unit in New York. "This will be a test for the Fed."

The central bank has bought $130.534 billion in U.S. debt as part of a $300 billion effort to lower consumer borrowing costs. Officials have also embarked on a plan to buy as much as $1.25 trillion in so-called agency mortgage-backed securities

Balance Sheet

Government securities declined even as today's auction of a record-tying $35 billion in five-year notes drew the most demand in three months from a group of investors that includes foreign central banks.

The Treasury plans to increase its debt sales after selling $1.9 trillion securities maturing in one year or less in the fourth quarter. Officials have boosted the sizes of all auctions and moved 10-and 30-year bond sales to monthly from eight and four times a year, respectively.

President Barack Obama has pushed the nation's marketable debt to an unprecedented $6.36 trillion and raised estimates for the deficit this year to a record $1.84 trillion.

Inflation

The unprecedented government borrowing has created concern about a rise in consumer prices. Policy makers have expanded the Fed's balance sheet to $2.2 trillion while excess reserves at U.S. banks have increased to $896.3 billion.

"Inflation is in the headlight of many investors," wrote Andrew Brenner, co-head of structured products and emerging markets in New York at MF Global Inc., in a note to clients today. The firm is the world's largest broker of exchange-traded futures. "A few are starting to think the Fed will raise rates sooner rather than later."

Central bank official have held the federal funds rate, the overnight lending rate between banks, in a range of zero to 0.25 percent since December.

Ten-year breakeven rates, the difference between yields on 10-year inflation-indexed bonds and nominal Treasuries of the same maturity, touched 1.9405 percent today, the widest the spread has been since Sept. 23.

To contact the reporter on this story: Dakin Campbell in New York atdcampbell27@bloomberg.net

Last Updated: May 27, 2009 17:22 EDT 

In the housing sector march price index continues to tumble.  Existing home sales went up slightly:

09:46 Mar House Price Index (1.1%) vs. consensus 0.2%
Feb figure revised to 0.2% from 0.7%. 
* * * * *

10:00 Apr Existing Home Sales 4.68M vs. consensus 4.66M
Mar figure was revised to 4.55M from 4.57M. 
* * * * * 

U.S. existing home sales rise 2.9 pct in April 

WASHINGTON, May 27 (Reuters) - The pace of sales of existing homes in the United States rose 2.9 percent in April, according to an industry survey on Wednesday that supported views the three-year housing recession was near a bottom. 

The National Association of Realtors said sales climbed to an annual rate of 4.68 million units from a downwardly revised 4.55 million pace in March, initially reported as 4.57 million. That was slightly higher than market expectations for a 4.66 million-unit pace. 

The inventory of existing homes for sale rose 8.8 percent to 3.97 million. The median national home price fell 15.4 percent from the same period a year-ago to $170,200. 

end

 

The FDIC reported on the health of its troubled banks and it is not good:

10:04 FDIC provides data on bank failures during Q1
The FDIC says 305 banks were on the problem list in Q1, up from 252 at the end of 2008, and the highest since 1994. Problem banks' assets were $220B at end of Q1, up from $159.4B at end of 2008. Bank loan loss provisions declined to $60.9B in Q1 from $69.3B at end of 2008. Loan loss provisioning is the most significant factor impacting bank earnings. Sheila Bair says troubled loans continue to accumulate and the costs associated with the impaired assets is weighing heavily on the banks. 

end

GM could not come to terms with the bondholders.  It now looks like the government is going to fund the new company with 50 billion dollars of fresh money. They will own 70% of the firm.

So much for free markets:

20:22 GM Treasury to inject roughly $50B in various financings to support GM restructuring - WSJ (1.44)
In its latest update on the GM restructuring, the Journal cites people familiar with the matter who say that the Treasury plans to inject a fresh $50B in various financings to support a workout. The paper adds that the government wants to leave GM with only about $10B-$12B in debt once it emerges from bankruptcy. The government had previously considered leaving GM with up to $40B in post-restructuring debt, but determined earlier this month that the auto maker could not handle such a burden. In line with earlier reports, the Journal says that to trim the debt load, the government decided to boost its stake in a reorganized GM to roughly 70% from a previously anticipated 50%. Of interest, sources tell the paper that senior lenders will get a full recovery on $6B in loans made to GM. 

end.

Late in the day we heard that Commercial Mortgage Backed Securities are in trouble with the TALF program.  It looks like the program will likely lead to a subtantial downgrade on AAA bonds issued from 2005 through to 2007 and again weaken banks balance sheets.  Here is the report leased at 2:25 today on Bloomberg:

2:25 WSJ discusses CMBS concerns
The Journal reports that the optimism surrounding the Fed's recent decision to expand the TALF to include high-quality CMBS took a big hit on Tuesday after S&P warned that proposed changes to its CMBS rating method would likely lead to substantial downgrades on triple-A-rated bonds issued from 2005 through 2007. Citing data from Trepp, the paper notes that yields on triple-A CMBS widened to 10.7% on Tuesday from 9.4% a week ago. According to Richard Parkus, head of CMBS research at Deutsche Bank, at least two-thirds, or $410B, of the CMBS loans maturing from this year to 2018, will not be able to be refinanced without additional equity from the property owners. The article also goes on to highlight some of the uncertainty surrounding the implications for the so-called B-piece of CMBS issues, which will not be eligible for government-sponsored financing.
Reference Link (subscription required) 

end.

John Taylor released a scathing attack on the health of the usa economy.  He claims that the exploding debt is killing the usa:

Exploding debt threatens America

John Taylor

Published: May 26 2009 20:48 | Last updated: May 26 2009 20:48

Standard and Poor's decision to downgrade its outlook for British sovereign debt from "stable" to "negative" should be a wake-up call for the US Congress and administration. Let us hope they wake up.

Under President Barack Obama's budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America's ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; theCongressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years. 

"A government debt burden of that [100 per cent] level, if sustained, would in Standard & Poor's view be incompatible with a triple A rating," as the risk rating agency stated last week.

I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor's considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?

Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth – probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.

The fact that the Federal Reserve is now buying longer-term Treasuries in an effort to keep Treasury yields low adds credibility to this scary story, because it suggests that the debt will be monetised. That the Fed may have a difficult task reducing its own ballooning balance sheet to prevent inflation increases the risks considerably. And 100 per cent inflation would, of course, mean a 100 per cent depreciation of the dollar. Americans would have to pay $2.80 for a euro; the Japanese could buy a dollar for Y50; and gold would be $2,000 per ounce. This is not a forecast, because policy can change; rather it is an indication of how much systemic risk the government is now creating.

Why might Washington sleep through this wake-up call? You can already hear the excuses.

"We have an unprecedented financial crisis and we must run unprecedented deficits." While there is debate about whether a large deficit today provides economic stimulus, there is no economic theory or evidence that shows that deficits in five or 10 years will help to get us out of this recession. Such thinking is irresponsible. If you believe deficits are good in bad times, then the responsible policy is to try to balance the budget in good times. The CBO projects that the economy will be back to delivering on its potential growth by 2014. A responsible budget would lay out proposals for balancing the budget by then rather than aim for trillion-dollar deficits.

"But we will cut the deficit in half." CBO analysts project that the deficit will be the same in 2019 as the administration estimates for 2010, a zero per cent cut.

"We inherited this mess." The debt was 41 per cent of GDP at the end of 1988, President Ronald Reagan's last year in office, the same as at the end of 2008, President George W. Bush's last year in office. If one thinks policies from Reagan to Bush were mistakes does it make any sense to double down on those mistakes, as with the 80 per cent debt-to-GDP level projected when Mr Obama leaves office?

The time for such excuses is over. They paint a picture of a government that is not working, one that creates risks rather than reduces them. Good government should be a nonpartisan issue. I have written that government actions and interventions in the past several years caused, prolonged and worsened the financial crisis. The problem is that policy is getting worse not better. Top government officials, including the heads of the US Treasury, the Fed, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission are calling for the creation of a powerfulsystemic risk regulator to reign in systemic risk in the private sector. But their government is now the most serious source of systemic risk.

The good news is that it is not too late. There is time to wake up, to make a mid-course correction, to get back on track. Many blame the rating agencies for not telling us about systemic risks in the private sector that lead to this crisis. Let us not ignore them when they try to tell us about the risks in the government sector that will lead to the next one.

The writer, a professor of economics at Stanford and a senior fellow at the Hoover Institution, is the author of 'Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis' -END-

end.

 

China today scathed the usa for its massive printing of paper money:

China warns Federal Reserve over 'printing money'

China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed's direct purchase of US Treasury bonds. 

By Ambrose Evans-Pritchard
Last Updated: 1:52PM BST 27 May 2009

Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature." 

"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal. 

His recent trip to the Far East appears to have been a stark reminder that Asia's "Confucian" culture of right action does not look kindly on the insouciant policy of printing money by Anglo-Saxons. 

Mr Fisher, the Fed's leading hawk, was a fierce opponent of the original decision to buy Treasury debt, fearing that it would lead to a blurring of the line between fiscal and monetary policy – and could all too easily degenerate into Argentine-style financing of uncontrolled spending. 

However, he agreed that the Fed was forced to take emergency action after the financial system "literally fell apart". 

Nor, he added was there much risk of inflation taking off yet. The Dallas Fed uses a "trim mean" method based on 180 prices that excludes extreme moves and is widely admired for accuracy. 

"You've got some mild deflation here," he said. 

The Oxford-educated Mr Fisher, an outspoken free-marketer and believer in the Schumpeterian process of "creative destruction", has been running a fervent campaign to alert Americans to the "very big hole" in unfunded pension and health-care liabilities built up by a careless political class over the years. 

"We at the Dallas Fed believe the total is over $99 trillion," he said in February. 

"This situation is of your own creation. When you berate your representatives or senators or presidents for the mess we are in, you are really berating yourself. You elect them," he said. 

His warning comes amid growing fears that America could lose its AAA sovereign rating.-END-

end.

 

However the big story was Marc Faber discussing the fact that the usa will enter hyperinflation equal to Zimbabwe:

 

U.S. Inflation to Approach Zimbabwe Level, Faber Says 

By Chen Shiyin and Bernard Lo

May 27 (Bloomberg) -- The U.S. economy will enter "hyperinflation" approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Fabersaid. 

Prices may increase at rates "close to" Zimbabwe's gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe's inflation rate reached 231 million percent in July, the last annual rate published by the statistics office. 

"I am 100 percent sure that the U.S. will go into hyperinflation," Faber said. "The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate." 

Federal Reserve Bank of Philadelphia President Charles Plosser said on May 21 inflation may rise to 2.5 percent in 2011. That exceeds the central bank officials' long-run preferred range of 1.7 percent to 2 percent and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices. 

"There are some concerns of a risk from inflation from all the liquidity injected into the banking system but it's not an immediate threat right now given all the excess capacity in the U.S. economy," said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. "I have a little more confidence that the Fed has an exit strategy for draining all the liquidity at the appropriate time." 

Action Economics is predicting inflation of minus 0.4 percent in the U.S. this year, with prices increasing by 1.8 percent and 2 percent in 2010 and 2011, respectively, Cohen said. 

Near Zero 

The U.S.'s main interest rate may need to stay near zero for several years given the recession's depth and forecasts that unemployment will reach 9 percent or higher, Glenn Rudebusch, associate director of research at the Federal Reserve Bank of San Francisco, said yesterday. 

Members of the rate-setting Federal Open Market Committee have held the federal funds rate, the overnight lending rate between banks, in a range of zero to 0.25 percent since December to revive lending and end the worst recession in 50 years. 

The global economy won't return to the "prosperity" of 2006 and 2007 even as it rebounds from a recession, Faber said. 

Equities in the U.S. won't fall to new lows, helped by increased money supply, he said. Still, global stocks are "rather overbought" and are "not cheap," Faber added. 

Faber still favors Asian stocks relative to U.S. government bonds and said Japanese equities may outperform many other markets over a five-year period. "Of all the regions in the world, Asia is still the most attractive by far," he said. 

Gloom, Doom 

Faber, the publisher of the Gloom, Boom & Doom report, said on April 7 stocks could fall as much as 10 percent before resuming gains. The Standard & Poor's 500 Index has since climbed 9 percent. 

Faber, who said he's adding to his gold investments, advised buying the precious metal at the start of its eight-year rally, when it traded for less than $300 an ounce. The metal topped $1,000 last year and traded at $949.85 an ounce at 12:50 p.m. Hong Kong time. He also told investors to bail out of U.S. stocks a week before the so-called Black Monday crash in 1987, according to his Web site.-END-

Bill Holter discusses the bankruptcy of GM and its implications:

Bill H:

To all; As announced yesterday, GM will be taken into bankruptcy this week. I don't think many investors have truly thought this through. First of all, this is GM we are talking about, not some BBQ joint in south Texas. I do not know the total number of employees and retirees but it must approach somrthing like 1 million people in all. Do you suppose these people (not to mention ancillary businesses and workers) will be out SPENDING up a storm anytime soon? Consumption was as high as 70% of GDP, I just don't see the American consumer coming back anytime in the near future. The average American consumer is cash strapped and or broke.

There have also been reports of homeowners that are 8 months late on payments and have not been contacted by their bank yet, let alone put through the foreclosure pipeline. The FDIC announced today that bank loans in arrears increased another $59 billion or roughly 25% during the first quarter. Banks are so overwhelmed with paperwork on late payees that they are running in arrears, or at least that is what it appears on the surface. Possibly these banks don't want to foreclose (NO, not out of the goodness of their hearts) because then they would have to admit to even more loans gone bad. Maybe they feel it would be easier to just "not account" for some of these loans in arrears in the hopes that no one notices?

The financial arena has gotten to the point of disgusting. A Ponzi scheme here, a Ponzi scheme there, bogus government statistics, money supply hidden from view, rampant market manipulation everywhere, banks say they want to pay back TARP one week and ask for more money a few weeks later, GM doesn't need bailout money in March and now they go into bankruptcy, where does it all end? Our new President at least spoke a little truth last week when he said "we are out of money". No problem though, this is one area where the US leads the world in manufacturing,...currency.

As you can tell, I'm disgusted and worn down from watching and reading the news. So much "bad math" passes as news that deciphering truth from fiction has become burdensome. It is at times like these that one must step back and try to remember core values and valuations. Does 50, or 100 times earnings sound like a bargain? Or how about lending money to a government at 4.5% for 30 years when you know they are expanding their money supply at something close to 20%? Should you buy a "bargain priced house" that has dropped 40% but still has an asking price of $250 per sq. ft.?

At times like these, I think it is better to just hold a core position in real money/mining shares and let the inmates in the asylum go crazy. In a world gone mad it is better to be a spectator than a participant. You can't change the world and you can't change the minds of those hell bent on destroying themselves financially, but you can help yourselves. Stay prepared. Regards, Bill H.

end

In summary, we saw the Dow plummet as the long bond tanked.  The dollar which was under fire early was the focal point that needed rescuing. The dollar rose from 80.04 to 80.33,  Not much of a rise in the face of the twin bond and stock market rout.

We are living in extremely dangerous times.

 

I will speak to you tomorrow

Harvey.

 

 

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