Saturday, June 27, 2009

June 27.09 commentary.

I first would like to send to you Eric deCarbonnel's latest paper on the debt crisis in California.  Beginning next week, the state will have to issue IOU's.
 
Here is the paper:
 

FRIDAY, JUNE 26, 2009

California About To Start Issuing Ious

by Eric deCarbonnel

The Associated Press reports that California lawmakers remained at an impasse over the state's deficit.

(emphasis mine) [my comment]

Controller: IOUs show Calif. fiscal mismanagement
By JUDY LIN – Friday, June 26, 2009

SACRAMENTO (AP) — California lawmakers remained at an impasse over solving the state's $24.3 billion deficit Friday as the state controller prepares to hand out roughly $3 billion in IOUs to vendors, low-income seniors and others.

A morning vote on a portion of the Democratic budget plan fell short of the necessary two-thirds support in the Assembly for the second time. Lawmakers were scheduled to work through the weekend, with the beginning of the new fiscal year and an impending cash crisis just days away.

State Controller John Chiang said he will have to start issuing IOUs as soon as Thursday without a budget revision because California will lack enough incoming tax revenue to meet all its payment obligations.

Among those who would not get paid until after October are students expecting college grants, low-income seniors and the disabled, and vendors that provide an array of services. Counties also will have to wait to be paid for administering social services.

The IOUs, also known as registered warrants, offer only a temporary fix to the state's cash-flow problem. Even if California issues the warrants, the state will be $600 million in the red in September, according to the controller's office.

It's not clear whether banks will honor the state's pledge to pay later.

The IOUs will look similar to a check but have the words "registered" printed on the front. If the state has enough cash in October, the state treasurer will pay the IOUs with interest. 
[The key word here is “IF”]

"We're not aware of any banks that (have) made a decision yet on whether they will honor those registered warrants," said Beth Mills, a spokeswoman for the California Bankers Association. "It's up to the individual banks."

Mills said banks will determine whether they will cash IOUs depending on how much the state will pay in interest. A state board is not expected to announce the interest rate until July 2.

The last time the state issued IOUs was during a protracted budget fight in 1992.Some banks initially honored the registered warrants but stopped cashing them as the stalemate dragged on.

On Friday, legislative leaders indicated they may make a second attempt to avoid having the state issue IOUs through a complicated cash-saving maneuver that includes delaying billions of dollars in payments to K-12 school districts, community colleges and universities. The vote passed the Assembly on a bipartisan vote Thursday but failed to get enough support from Republicans to pass in the Senate.


Without a new budget, Chiang said Friday that he will have to start issuing IOUs.Students expecting college grants and low-income seniors would not get paid, along with vendors providing services to the state.

Chiang said taxpayers will also owe interest on IOUs.

US news reports that 10 Things You Didn't Know About California's Budget.

10 Things You Didn't Know About California's Budget
The Golden State is facing a large budget deficit
Posted June 26, 2009

1) California's economy is larger than that of many countries, including Canada and Brazil.

2) The state's deficit is estimated at $24 billion for the fiscal year that begins July 1.

3) Gov. Arnold Schwarzenegger's budget proposes slashing health and welfare spending by 26.5 percent and closing 80 percent of state parks.

4) To cut the deficit, Schwarzenegger has stated that he would eliminate the state's basic welfare program, which serves 1.3 million residents. 
[there are going to be drastic cutbacks on welfare programs across the nation]

5) Democrats are seeking alternatives to major cuts, such as rescinding $1 billion in corporate tax breaks, enacting a 10 percent tax on oil pumped in California, and tapping into a $4.5 billion rainy-day fund.

6) Californians pay the second-highest sales tax in the nation; the state's gas tax is the third-highest in the nation; and California's top earners have the second-highest state income tax rate in the country. 
[Despite all these high taxes, California is still running out of money… That is a show of staggering incompetence]

7) California residents with incomes of more than $500,000 pay nearly 40 percent of the state's personal income tax revenue.

8) A state ballot initiative approved by voters in 1978 limits property tax rates, the primary source of revenue for school districts and local governments, to 1 percent.

9) California has the highest research and development tax credit in the country, which will cost the state $1.2 billion in potential tax revenue this year.

10) State officials have said that California will run out of cash by the end of July. Schwarzenegger sought a $6 billion loan guarantee from the federal government, but his request was denied.

My reaction: California is slipping deeper into financial crisis and is about to start issuing IOUs. There are two key points to realize from what is going on in California:


1) California’s crisis has implications for all government debt

Two weeks ago, I reported on how California is leading nation to bond default abyss.

My reaction: As Kevin Hassett writes, “The California budget crisis may well lead to a second financial calamity that would be far worse than anything experienced over the past 18 months.”

1) California is more than $24.3 billion in the hole.

2) On Monday, California Gov. Arnold Schwarzenegger ordered a halt to funding for state contracts on everything from pencils to office space.

3) California's state controller has warned about the state running out of cash in two weeks (this warning happened last week).

4) The likely scenario (also the nightmare scenario) is that all California’s lenders disappear, and the state is unable to roll over its debt.

5) If the unofficial eighth-largest economy fails on its debt, it will cast doubt on all government debt, especially treasuries.

6) The US government's fiscal situation is in worse shape than California's.


Conclusion: The ‘bad’ phase of the financial crisis is on the verge of beginning. It involves the dollar’s collapse, soaring commodities, and skyrocketing interest rates.

The time frame for everything to really start falling apart is the next two or three months. California budget crisis is one of many factors which sets this time frame (default is likely within three months). A default by California would drag the bond market into the abyss.

It is virtually certain that lenders will desert California at some point later this year, and the state will be unable to roll over its debt. When this happens, borrowing cost for US governments on all levels (local, state, and federal) will go up. The dollar will also be hurt as lenders look outside the US for more credit worthy governments to lend to.

2) California’s problems aren’t unique

Unfortunately, California isn’t the only state in trouble. As I reported last year, the vast majority of states are facing budget troubles.

1) The vast majority of states cannot run a deficit or borrow to cover their operating expenditures. As a result, states must close to budget shortfalls by either drawing on reserves, cutting expenditures, or raising taxes.

2) States have already begun drawing down reserves, and the remaining reserves are not sufficient to weather a significant economic downturn. Also, Many states have no reserves and never fully recovered from the fiscal crisis in the early part of the decade.

3) State budget cuts often are more severe in the second year of a state fiscal crisis, after reserves have been largely depleted.

4) When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. These cuts, like taxes, drain an enormous amount of money out of the economy.

5) Expenditure cuts and tax increases are problematic policies that cause economic downturns to deepen. They both leave business and individuals with less cash and thereby remove demand from the economy, causing state and federal GDP to shrink.

6) The federal government will eventually be forced to step in and offer states some form of assistance to prevent economic collapses and humanitarian disasters. This means more bailouts, and these bailouts will only marginally help state deal with their enormous budget shortfalls.

7) All the state budget troubles also apply to local governments. In fact, local governments with their reliance on property taxes and crushing pension obligations are in an even worse financial position.

As local and state governments across the country cut back on spending, unemployment will rise and US gdp will shrink.

end.


Next week OUI's will be issued to fund college grants and vendors and state employees.  You can be sure that lenders will flee in droves when this happens.
 
I can also assure you that many states are in the same predictament as California with NY a close second.
 
OK lets go with the general news of the day:
 
Gold closed yesterday up by 1.70 to 939.70.  Silver rose 13 cents to 14.16. The open interest on gold comex rose by  1500 contracts to 380,000 as speculators seem to want to challenge the authority of the crooked bankers.  Silver's OI  fell by 1600 contracts.  Silver's OI contraction came in the form of some commercial liquidation as word is getting out that the comex is having great difficulty in dealing with the silver deliveries.
 
Yesterday was the last day for the July silver contract.  We must wait until Monday or Tuesday to get a clearer picture.  However a rather large 20,000 contracts on the July contract still remain.  We must also wait to see how many options were exercised.
 
At the end of my commentary, there is an article on the comex and all its faulty reporting of data.  The publication is from the respected Huffington Post.
 
Congressman Kirk visited China a few weeks ago and he has given many interviews with Bloomberg and other networks with respect to China's appetite for gold.  I urge you all to read the article and view the video:
 
 

80bil in gold for CHINA

Rep Mark Kirk (R-IL) says during an official visit to China he was told in private by Chinese government officials that they had created a second strategic petroleum reserve and were in the market for $80 billion in gold.

Here is the interview with Greta van Sustern... which gets interesting around the 3 minute mark:

http://www.youtube.com/watch?v=PUl9DedlQJw 

end.
 
In economic news,  personal income rose by 1.4% which surprised everyone.  On closer examination, it was 95% releated to the stimulus pkg and a one time boost in unemployment benefits to citizens.
 
08:30 May Personal Income 1.4% vs. consensus 0.3%; Spending 0.3% vs. consensus 0.3%
PCE Deflator (y/y) 0.1% vs. consensus 0.1%; PCE Core (m/m) 0.1% vs. consensus 0.1%. Apr Income revised to 0.7% from 0.5%; Spending revised to 0.0% from (0.1%). 
* * * * * 

U.S. consumer spending rises 0.3 pct in May 

WASHINGTON, June 26 (Reuters) - U.S. consumer spending rose as expected in May while personal income posted a larger than expected jump, a government report showed on Friday, as consumers spent government stimulus money. 

Spending, which accounts for over 70 percent of U.S. economic activity, rose 0.3 percent after an upwardly revised flat reading last month. It was the first gain in spending since February, a Commerce Department report said.

end.
 
This is the explanation as to the rise in May spending:
 
08:36 Follow-up: Personal Income stronger than expected, but driven only by government benefits
The unexpected strength in personal income, up 1.4% in May, was somewhat misleading. Wage and salaries, which are the key underlying driver of income, actually fell (0.1%) in May. The strength in total income was driven entirely by government transfer payments, which jumped 8.0%, driven by a 21.0% spike in the "other" category of benefits. Equity futures spiked initially, but are already giving back some of the gains, with S&P futures currently (1.0) vs fair value. 
end.
 
The Michigan confidence number released early in the session tried to give a lift to the Dow.  However the Dow succumbed down 36 points by the end of the day:
( I guess many do not believe in these numbers)

09:55 Jun Univ of Michigan Confidence 70.8 vs. consensus 69.0
Prior reading was 69.0. 
* * * * *

Consumer sentiment rises in June: survey 

NEW YORK (Reuters) - U.S. consumer confidence rose in June to the highest since February 2008, as expectations grew that the worst economic recession since the Great Depression may be ending, a survey showed on Friday. 

The Reuters/University of Michigan Surveys of Consumers said its final index of confidence for June was at 70.8 from 68.7 in May, equaling February 2008's reading. 

This was above economists' median expectation for a reading of 69.0, according to a Reuters poll. 

The index of consumer expectations edged lower, though, to 69.2 in June from 69.4 last month. 

Since the November 2008 low of 55.3, the sentiment index has gained 15.5 points, recouping about one-third of the loss posted since the peak in January 2007. 

"Such a sizable gain has usually indicated that an end to the economic downturn is on the horizon, as consumers begin to increase their spending on houses, vehicles, and large household durables," the Reuters/University of Michigan Surveys of Consumers said in a statement.

-END-

The following was the big story of the day:  China wishes a new reserve currency and wishes to use the IMF's SDR format:

Wary of dollar, China wants super-sovereign currency 

* China's central bank calls for super-sovereign currency 

* Dollar's dominance has intensified risk, worsened crisis 

* IMF should manage part of its members' FX reserves 

By Zhou Xin and Chris Buckley 

BEIJING, June 26 (Reuters) - China's central bank renewed its call on Friday for the creation of a super-sovereign reserve currency to reduce the dollar's global domination, which it said had worsened the financial crisis. 

In its annual financial stability report, the central bank did not mention the dollar by name but said it was a serious defect that one currency should tower over all others. 

"An international monetary system dominated by a single sovereign sovereign currency has intensified the concentration of risk and the spread of the crisis," the People's Bank of China said. 

In thinly-veiled criticism of loose U.S. monetary and fiscal policies, the PBOC urged the International Monetary Fund to exercise closer supervision of the economic and financial policies of major reserve-issuing countries. 

The 170-page report dusted off a call by the bank's governor, Zhou Xiaochuan, for the creation of a super-sovereign currency. 

In an essay in late March, Zhou caused a stir by suggesting that the Special Drawing Right, the IMF's unit of account, could eventually displace the dollar as the principal reserve currency. [ID:nPEK184558] 

Friday's report not only advocated a full role for the SDR but said the IMF should be entrusted with managing a portion of its member countries' foreign currency reserves. 

"To avoid intrinsic shortcomings in using a sovereign currency as a reserve currency, we need to create an international reserve currency that is divorced from sovereign states and can maintain a stable value over the long term," the report said. 

end.

Here is the latest official data from the Comex on silver and gold.  You can see why I do not like to report these numbers as it is totally bogus:

 

COMEX Warehouse Stocks June 25, 2009

SILVER

ZERO ozs withdrawn from the dealer’s inventory. 
678,158 ozs withdrawn from the customer inventory
Total dealer inventory 62.0 Mozs
Total customer inventory 56.6 Mozs
Combined Total 118.6 MOZ

GOLD

97 ozs withdrawn from the dealers (registered) category
15,595 ozs (net) deposited in the customer (eligible) category
Total dealer inventory 2.57 Mozs
Total customer inventory 6.15 Mozs
Combined Total 8.72 MOZ

Gold movements were mainly in the customer inventory. 58Kozs were deposited and 42Kozs withdrawn for a net difference of 15.5Kozs. It is laughable that 97 ozs were withdrawn from the dealers inventory!!. Once again the big news is in silver, and once again the movements are in the customer inventory…are the dealers not dealing in silver any more?!!! ; What a joke! Speaking of jokes there were 1 million ozs of silver that magically appeared in the warehouse over night! The closing balance of the customer inventory yesterday was 56.2 Mozs but miraculously the opening balance today was 57.2 Mozs! Hmmm. 1.02 Mozs were also apparently deposited today and 1.7 Mozs were withdrawn. That is a lot of metal movement. Something doesn’t smell right.

There were 151 delivery notices in gold for the JUNE contract bringing the total for the month to 5833 contracts or 583,300 ozs which is 23% of the dealer inventory!

There were surprisingly 5 delivery notices issued in silver for the JUNE contract. The total delivery notices for the month stand at 1042 or 5.2 Mozs. 
Cheers
Adrian

COMEX Warehouse Stocks June 26, 2009

SILVER

130,404 ozs withdrawn from the dealer’s inventory 
62,427 ozs (net) deposited the customer inventory 
Total dealer inventory 61.8 Mozs 
Total customer inventory 56.6 Mozs
Combined Total 118.4 MOZ

GOLD

20,358 ozs withdrawn from the dealers (registered) category 
20,057 ozs (net) deposited in the customer (eligible) category
Total dealer inventory 2.55 Mozs
Total customer inventory 6.17 Mozs
Combined Total 8.72 MOZ

Some top class accounting was demonstrated in the COMEX report today. 30,074 ozs were deposited in the customer inventory and zero were withdrawn and the net change is given as 20,057 ozs!!! You couldn’t make this stuff up. I can not accept that the COMEX has the metal they say they have when there is incoherence between delivery notices and warehouse movements and there are glaring accounting mistakes.

There were 129 delivery notices in gold for the JUNE contract bringing the total for the month to 5962 contracts or 596,200 ozs which is 23% of the dealer inventory!

There were no delivery notices issued in silver for the JUNE contract. The total delivery notices for the month stand at 1042 or 5.2 Mozs.
Cheers
Adrian

end.

As promised, this is a must read article from the well respected Huffington Post.  You will agree with me that the data disseminating out of the comex is total rubbish: (press on the blue for the article)

Must-read on Comex from a reporter

for the Huffington Post. This article highlights what GATA/LeMet subscribers have long known:

What does it all mean? First, there are indications that the seller side of futures contracts (such as Deutsche Bank in April) are having a difficult time making good on their commitments. Second, the information reported by the Comex regarding physical inflows and outflows is looking more and more like a convenient fiction. Third, there is some doubt as to whether there is gold in inventory -- as there absolutely should be -- to match existing warehouse receipts. Fourth, the Comex warehouse is one of the most secure forms of gold investment in the world. If they can't be trusted, what does that say about ETFs, pooled accounts, futures, forwards, options, and all the other forms of "paper gold" out there? Fifth, if it becomes clearer that there is no physical supply to meet physical demand, the dollar price of gold could go much higher.

http://www.huffingtonpost.com/nathan-lewis/wheres-the-gold_b_216896.html***

The Fed chairman Ben Bernanke had a terrible day testifying on the hill yesterday.  I do not think the Fed will get it's expanded supervisory role in the banking mess:

 

Bernanke appears to be under considerable pressure in the congress hearings investigating the BofA Merrill deal, as reported in yesterdays Midas.http://news.yahoo.com/s/nm/20090625/bs_nm/us_financial_bankofamerica_8

Bernanke denies Fed threatened BofA over Merrill deal

« "I did not tell Bank of America's management that the Federal Reserve would take action against the board or management," he, (Bernancke) said……………….

During the hearing, lawmakers cited an e-mail written by Richmond Federal Reserve Bank President Jeffrey Lacker as possible evidence of undue Fed pressure on Lewis. In the e-mail, Lacker said Bernanke had told him he planned to make it clear that pulling back from the merger could result in managers losing their jobs if Bank of America ended up needing aid…………..

The controversy over the Fed's role in the Bank of America-Merrill deal could also color President Barack Obama's looming decision on whether to reappoint Bernanke when his four-year term as chairman expires January 31…………

Paulson has been called to testify next month………... » END

Here we have 2 of the key PPT players, namely the Fed. chairman, and the (ex) Treasury Secretary Paulson, trying to pass the buck to each other, with smoking gun evidence (Lacker’s email) pointing to Bernancke perhaps taking the rap. Apportioning blame on a patsy is well worn routine, when the public are howling for revenge as the depression deepens.

B. is obviously reluctant to accept the role, and doesnt want to lose his job or even worse, end up like Libby as a temporary guest of the state.

So what would you do in B.’s situation ?

What leverage does Bernanke have on his PPT et alia friends, who are stabbing him in the back in order to protect themselves. ?

Would he still want to participate in facilitating the other potentially illegal market manipulations of the PPT in particular capping the gold price, (and shorting the PM shares), to support the strong $ policy ?

If B. withdraws his support for the gold suppression scheme or threatens to do so, will his « friends » back off, because he could bring down the $, and the whole system including Govt.Stacks ?

Is this the reason that yesterday gold and the PM shares started trading differently ? For the first time in months I had no red, only green on my screen with the PMs and juniors, (although many of them did not trade.).

The jury is still out until the congressional enquiry comes to some conclusion, but in the meantime this is a story to follow.

My guess is there will be a cover up and they will go back to business as usual, but they are skating on thin ice, because Bernanke is obviously feeling cornered.

Just timagine if B. tried to cut a deal to lessen any penal moves against him, and started exposing the gold suppression scheme to the enquiry ?

Interesting times ?
Best
Alan

I wish you all a grand weekend.

 

Jim Sinclair also wrote a piece on California at www.jsmineset.com  and i urge you to read that as well.

see you on Monday

Harvey.

 

 

 

 

 

Thursday, June 25, 2009

June 25.09 commentary.

 
Good evening Ladies and Gentlemen:
 
Gold closed up by 5.10 to 939.00.  Silver closed up by 11 cents to 13.99.
 
This is a rare event for gold and silver to close up on an option expiry day.  Note however that most calls on gold comex are at 940.00 gold and most silver options are at 14.00.
So the cartel did their deed and keep the metals below a strike price which could have caused gold/silver being taken off the comex.
 
In gold comex the open interest rose by 8000 as the banks supplied the paper and speculators drove in on news that there was no change in the Fed's plan for quantitive easing.
In silver the OI fell by 1000 contracts.
 
Here are some prices for today:
 
The dollar fell late in the day to close down .12 to 80.37.

The euro rose LATE, up .0041 to 1.3990. The yen fell to 95.87 and the pound fell to 1.6365.

Crude oil gained $1.28 per barrel to $69.95.

The CRB went up 2.98 to 252.82.

 
end.
 
Today, we got two important news events.  First on the labour front:
 

08:30 Jobless claims for w/e 20-Jun 627K vs. consensus 600K
Prior week revised to 612K from 608K. Continuing claims for w/e 13-Jun 6.738M vs. consensus 6.714M; prior week revised to 6.709M from 6.687M. 
* * * * *

U.S. jobless claims rose 15,000 in latest week 

WASHINGTON, June 25 (Reuters) - The number of U.S. workers filing new claims for jobless benefits unexpectedly rose last week and the number staying on the rolls after collecting an initial week of aid also edged higher, government data on Thursday showed. 

Initial claims for state unemployment insurance increased by 15,000 to a greater-than-expected seasonally adjusted 627,000 from a revised 612,000 the week before, the Labor 
Department said. Analysts polled by Reuters had forecast claims to drop to 600,000 from a previously reported 608,000.

end.

 

And now for our interpretation:

Unadjusted Year Over Year: Labor Department Initial Jobless Claims Up 58%

Here's the scoop on the Labor Department's weekly initial jobs claims report:

Associated Press Headline And Lead: "New jobless claims rise unexpectedly to 627K... The government says the number of Americans filing first-time claims for jobless benefits increased last week, partly due to layoffs related to the end of the school year."

Labor Department News Release: click here. Key Numbers: The advance number of actual initial claims under state programs, unadjusted, totaled 566,586 in the week ending June 20, an increase of 5,846 decrease from the previous week. There were 358,159 initial claims in the comparable week in 2008. NOTE: In 2006, when the economy was good (remember "Stronger For Longer?"), this number was 276,508.

Here's my uneducated interpretation - Not much happening here. Initial jobless claims is a leading indicator and they indicate that the economy is steadily contracting. Year over year the weekly job loss looks pretty steady around 200,000 more this week than a year ago (bottom dashed line in graph). I don't see any deceleration in the economic downturn here. In 2006, when the economy was good (remember Stronger For Longer?), this number was 276,508. I would think we'd have to see the initial jobless claims under 350,000 before we could say they economy was good. That's quite an improvement. The Associated Press is unable to find a positive spin for its lead other than to say the numbers were "unexpected".

Here's a chart of the initial jobless claims since I started gathering them.

MontyHigh, www.worldofwallstreet.com

 

end.

 

There is no end in site for the continued weakness in the labour scene.

I always look for the commercial paper to rise in number to signify to me that the economy is really growing green shoots.  The commercial paper is contracting, then there is contracting economic activity and thus no green shoots.

Look at the results for last month with respect to commercial paper:

US commercial paper outstanding falls in week-Fed 

NEW YORK, June 25 (Reuters) - The U.S. commercial paper market contracted in the latest week as companies favored longer-term corporate debt over shorter-term securities to raise capital, Federal Reserve data showed on Thursday. 

For the week ended Wednesday, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, fell by $47.5 billion 

U.S. asset-backed commercial paper outstanding fell to $481.4 billion in the latest week from $502.7 billion the previous week. 

Unsecured financial issuance outstanding rose $18.2 billion to $564.5 billion after falling by $100 million in 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.

 

The GDP figure for last month showed a contraction of 5.5%  which followed the 4th quarte 6.3%:

 

8:30 Q1 final GDP (5.5%) vs. consensus (5.7%); Personal Consumption 1.4% vs. consensus 1.5%
Price Index 2.8% vs. consensus 2.8%; Core PCE 1.6% vs. consensus 1.5%. 
* * * * *

U.S. GDP contracts less in Q1, demand still soft 

WASHINGTON, June 25 (Reuters) - The U.S. economy shrank slightly less in early 2009 than previously thought, the government reported on Thursday, though there was widespread weakness in activity and demand was soft. 

Gross domestic product, which measures total output within U.S. borders, dropped at a 5.5 percent annual rate in the first quarter after shrinking 6.3 percent in the fourth quarter of last year and 0.5 percent in the third quarter.

end.

Fitch came out today and reported on Asset Backed Securities and their default rates.  It rose by 22% last month:

DJ Fitch: Prime Auto ABS Delinqencies Rise 22% In May

BCG:

 

end.

Today, the Dow rose by 171 points as word came that the 7 yr  treasury note auction went well and that bid to cover ratio was 3:1: signifying foreign participation.

 

However, please remember what we published yesterday:

The gov't is now playing with the foreigner participation stats
http://market-ticker.org/arch
ives/1159-More-Intentional-Misdirection.html

-END-

 

Today, Bernanke was on the hill tesifying on the Bank of America merger with Merrill Lynch.  His testimony differed from Paulson and Lewis: (from Bloomberg)

Lawmaker accuses Fed of "cover-up" in BofA deal

Wed Jun 24, 2009 7:03pm EDT
Email | Print |   | Reprints | Single Page
[-] Text [+]

By Kim Dixon

WASHINGTON (Reuters) - The Federal Reserve sought to hide its involvement in Bank of America Corp's (BAC.N) acquisition of Merrill Lynch as Merrill's financial condition worsened, the top Republican on the House Oversight and Government Reform Committee said on Wednesday.

The Fed "engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies," Representative Darrell Issa said in a statement released to Reuters.

Bernanke has in the past denied any inappropriate pressure on Bank of America. Fed spokeswoman Michelle Smith on Wednesday referred to a letter Bernanke sent Representative Dennis Kucinich on April 30 and later testimony in which he offered an "unconditional assertion" that he did not ask Bank of America CEO Ken Lewis to withhold information regarding Merrill.

"The Federal Reserve acted with the highest integrity throughout its discussions with Bank of America," Bernanke wrote to the Ohio Democrat, who chairs a subcommittee on the Oversight panel.

The Democrat who heads the committee, Edolphus Towns of New York, has called Bernanke to testify on Thursday. "I am not going to prejudge these issues. We are not even close to finishing the Bank of America-Merrill Lynch investigation at this point," Towns said in a statement.

POLITICAL FOOTBALL

Democrats on the panel have focused on whether Bank of America's Lewis illegally misled investors about Merrill's finances, while Republicans have zeroed in on whether the Fed and former Treasury Secretary Henry Paulson inappropriately pressured Lewis to seal the deal.

The issue has become a political football as lawmakers look to blame someone for the troubled deal amid taxpayer anger over the billions of dollars the government infused into banks to try to ease the world financial crisis.

A Democratic source close to the committee said Republican members leaked documents just before a hearing earlier this month where Lewis testified. "They framed the story by looking at only a few of the documents," said the source, who was not authorized to be quoted on the matter.

Some Democrats believe Bank of America's Lewis had to know about Merrill's deepening losses and that Lewis was threatening to pull out of the deal as a way to get more assistance from the Fed. Still, the Democratic source said, "The Fed does not come out smelling like roses."

Kucinich said what is remarkable about the situation was that the Fed required no changes in the bank's leadership or conditions on the billions that did go to Bank of America.

The bank, which did not return a phone call seeking comment, has taken $45 billion in bailout funds from the government.

Other documents released by the committee earlier this month revealed that a Fed analysis found deficiencies in the due diligence conducted by Bank of America prior to the Merrill deal.

PRESSURE, DISCLOSURE

Earlier this month, the same panel questioned Lewis about whether he was pressured to complete the deal with Merrill, which lost $15.8 billion in the fourth quarter of 2008. Lewis told the lawmakers that Bernanke never asked him to keep secret any information the bank wanted to disclose to shareholders.  Continued...

end.

This is Bill Holters commentary on the subject:

To all; Ben Bernanke is testifying before Congress today regarding BofA and Merrill Lynch. This has become very intriguing, somebody is definitely lying. Ken Lewis and Hank Paulson have similar recollections while Mr. Bernanke denies any pressure or threats to fire management and the board if they didn't consummate the deal. Mr. Bernanke also is invoking that time tested response quite often of "I don't recall".

This has ramifications far beyond somebody doing jail time for perjury, we could be witnessing a very Dollar negative saga because the Dollar is the "common stock" of the United States. If I were a foreigner who decided years ago to invest in the US because of its perceived "safety" from a political and "fair and transparent" standpoint, I would probably be voting now with my feet and exiting the now dirty den of thieves. I don't know how this will end, maybe they end up making Ken Lewis the scapegoat and both Paulson and Bernanke get a free pass. Maybe Mr. Bernanke gets caught up in perjury charges. The one certainty is that this is very embarrassing and will become more Dollar negative as time passes.

end.

 

I will speak to you on Saturday

 

Harvey.

 

 

Wednesday, June 24, 2009

jUNE 24.09 COMMENTARY

 
 
Good evening Ladies and Gentlemen:
 
Gold closed down in regular trading at 933.90 up by 10.10.  Silver rose by 8 cents to 13.88.
 
The open comex gold interest fell another 4600 contracts to 370000, as long speculators are giving up playing against the crooks.  In silver, the Oi retreated by 1145 contracts to 106000.
There was considerable movement of silver and gold out of the comex  (real physical metal).  In silver over 1.4 million oz was removed and in gold 42000 oz left.
 
Early this morning came news that the ECB has decided to put 430 billion Euros (approx 660 billion usa dollars worth ) into the markets to stabilize them.  Gold immediately shot up 15.00 dollars with this news.
The rest of the day, the cartel members tried desperately to contain gold and silver's rise.
 
Remember that tomorrow is options expiry on the silver contract so expect that the cartel will raid these metals.  The chances of gold and silver going up tomorrow are nil.
 
Today we got the FOMC results and basically it is stay the course:  print money and continue with QE to the tune of 300 billion dollars and continue with QE in the mortgage field at 1.45 trillion.
The market responded with such wonderful news by bidding up the price of the usa dollar, whacking the euro and hitting gold and silver in the access market:
 
Here is the news for you to digest:
 
Fed holds policy steady, less worried on deflation 

WASHINGTON, June 24 (Reuters) - The Federal Reserve on Wednesday held monetary policy steady and said the U.S. economic recession was easing, as it signaled its worries over a possible troubling downward spiral in prices were easing. 

Concluding a two-day meeting, the central bank also said it had decided to hold overnight interest rates in a zero to 0.25 percent range -- the level reached in December -- and repeated that they would likely stay unusually low for some time. 

With the benchmark interbank lending rate virtually at zero, the Fed has focused on driving down other borrowing costs by buying mortgage-related debt and U.S. government bonds.
 
end
 

14:21 FOMC statement notes again that the pace of contraction is slowing
The FOMC also said in the prior statement that the pace of contraction was slower, and repeats that today. The FOMC also says again that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period." This language was unchanged from the prior statement, as were the FOMC's comments regarding its anticipated outright purchases of MBS, agency debt, and Treasuries. 
* * * * *

Call it algorithm trading or whatever, it wasn't long before the euro began to fall apart, going down .0170 as the DOW went from up 60 to down 30 before this news. Time and time again the euro is hit hard when the DOW has a sudden flop. Meanwhile, the yield on the 10 yr T note rose from 3.65 to 3.75%. And, naturally, The Gold Cartel swung into action with few traders around, dropping the price $10.

 

end.

Here are some comments on the Fed's Policy today:   from Mexico Mike:

Orange is the new black

Hi Bill!
I would think the people who write market commentary for the big networks must be getting close to a nervous breakdown by now. I mean the pressure on these people must be huge, to try and find some kind of credible spin day after day to brighten up what is otherwise a brutal economic backdrop, and come up with excuses for why our manipulated markets are responding the way they are.

The FED chose to hold rates steady today, which should surprise no one. In fact, there is no way that the FED can move to raise rates right now without blowing the wheels right off the fragile markets. We are told inflation is low. Oil has doubled off its lows in half a year and commodity prices are rising as some of that newly printed money looks for a home, which is how I would define price inflation, but never mind, if the FED says inflation is not an issue, then its NOT AN ISSUE. As always I ask, where the hell are the emperor's clothes?

Why is the dollar rallying on the news that rates are held steady? Surely it was priced in already. Nothing matters anymore because the invisible hand of market manipulation will make sure that things go exactly the way the FED wants it to. Orange is the new black, and do not dare question the wisdom of the high priests of finance.

I am expecting a big smackdown in the metals tomorrow, and another miracle rise in the dollar. This should be the kind of backdrop that the Masters of the Universe want to see for the scheduled treasury auction, and the options expiry on the COMEX. Thereafter it will probably be safe to go back in the water and the PM sector should settle down. Don't you just love our free markets?
Cheers!
MexicoMike

Ok. lets go to other economic data for today:

First the release of durable goods:

 

U.S. May durable goods orders up 1.8 percent 

WASHINGTON, June 24 (Reuters) - New orders for long-lasting U.S. manufactured goods rose by a much stronger-than-expected 1.8 percent in May, Commerce Department data on Wednesday showed, providing further evidence that the battered U.S. economy was finding its feet. 

Analysts polled by Reuters had forecast durable goods orders would decline 0.6 percent last month, after a revised 1.8 percent gain in April. This was previously reported as a 1.7 percent rise. May's increase was the third gain in durable goods orders in 4 months.

-END-

 

and now the real story:

Unadjusted Year Over Year: Census Department Durable Goods Manufacturers New Orders Down 24.5%

Here's the summary for today's Census Department's monthly Durable Goods orders and Shipments report:

  • Associated Press Headline And Lead: "US durable goods orders rise unexpectedly in May... Orders to U.S. factories for big-ticket manufactured goods rose sharply for a second straight month in May, and a key indicator of business investment surged by the largest amount in nearly five years."
  • Last Months Numbers: Orders=-26.56%, Shipments=-19.74%

Here's my uneducated interpretation: A perfect example of optimistic spinning by the AP. They talk about new orders soaring while year over year they are down over 24%! At the current rate of deceleration it will take another year before year-over-year new orders, a leading indicator, goes neutral. The bottom for the economy is not in. Actual durable good shipments continue to accelerate downward moving from down 19.7% year over year to down 21% year over year.

MontyHigh, http://www.worldofwallstreet.us/

 

end.

 

USA homes fell sharply in May.  First the press release:

U.S. May home sales slip to 342,000 pace 

WASHINGTON, June 24 (Reuters) - Sales of newly built U.S. single-family homes slipped slightly in May, according to Commerce Department data on Wednesday that underscored that conditions in the hard-hit housing market remain fragile. 

The annual sales pace of 342,000 was a 0.6 percent decline from April. Economists polled by Reuters had forecast sales would notch a 360,000 rate. It also remained far below the 509,000 annualized pace of May, 2008. 

But the median sales price rose to $221,600 from $212,600 in April and was the highest since December, when it was $229,600. The median marks the half-way point, with half of all houses sold above that level and half below.

end

and now the real story on the lousy home sales:

Unadjusted Year Over Year: Commerce Department New Home Sales Down 35%, Median Price Down 3%

Here's the summary for the Commerce Department's New Home Sales for May 2009:

  • Associated Press Headline And Lead: "May new home sales dip 0.6 percent... New U.S. home sales fell slightly last month, another sign that the housing market's recovery is likely to be gradual and prolonged."Department Of Commerce News Release: click here.Key Numbers: New Houses Sold Unadjusted: 32,000, Year Ago: 49,000, Year Over Year %: -34.69. Median Price Unadjusted: $221,600, Year Ago: $229,300, Year Over Year %: -3.36.
  • Last Month's Numbers: New House Sold YoY=-32.65%, Median Price Yoy=-3.36%

Here's my uneducated (also not not spun by guys trying to make you a sucker) interpretation - Obviously, these numbers look terrible as the fall, year over year, of new home sales accelerates. No turn-around for the economy to be found in housing. Final Note: AP has to really struggle to put a positive spin on these numbers. In this case its by presuming, apart from any evidence, that the housing market is destined to recover.

To be fair, the median house price did not fall nearly as fast year over year this month as last month. I'm surprised the AP didn't seize on this as a "green shoot".MontyHigh, http://www.worldofwallstreet.us/

end.

Here is some anecdotal evidence of how prices are faring in Denver which is generally in good shape with respect to the rest of the country:

Dave from Denver…

New home sales back to 1981 levels

http://1.bp.blogspot.com/_FM71j6-VkNE/SkIymXfjA1I/AAAAAAAADm8
/XPvTcLYdFZw/s1600-h/New+Home+Sales.jpg

I said 7 years ago that housing prices would fall to at least 1995 levels. We are already there in some areas. About six months ago I revised my view and now believe we might see 1981 price levels before we hit a bottom, at least in prices. 1981 price levels aren't actually much lower than 1995 prices levels, as we had a big price correction in the mid-80's and early 1991, so my view is not a big leap of faith.

I heard from my friend who is connected to the Government mortgage consultant again this morning. He said that, because of massive job loss and unemployment, Wall Street and the public have no concept of just how few people can actually make the payments on their mortgages, BEFORE we see the huge wave of Alt-A, Option-ARM and Prime ARM resets and recasts (in a recast, the mortgage payments are reset to amortize over the remaining life of the mortgage, which typically substantially increases the monthly payment regardless of the level of rate reset). This guy has access to the "inside" numbers at FNM/FRE/FHA, etc.

And on another note, a friend of mine who is contemplating leaving her career as a real estate broker, said that her real estate firm is now internally forecasting another 7 years of price declines in the Denver area....

Additional color on housing

My friend who is the broker in Denver also said the default rate on mortgages in Colorado is now 19%. And Colorado has one of the relatively stronger regional economies (4.4% unemployment rate). She also said that a large number of homes listed in Denver require "short" sales, which mean they are worth significantly less than the mortgage amount and take a lot longer to process than a standard sale. It sounds like the bank-owned inventory is about to undergo a massive increase this summer.

***

end.

What a surprise?  You mean they rig the auctions to think that it was a huge success?

US Treasury auction changes may overstate indirect bid 

NEW YORK, June 24 (Reuters) - Recent changes to the way the U.S. Treasury tallies demand at its bond auctions may be artificially inflating "indirect bids," a category used by investors as a loose proxy for foreign demand. 

Foreign investors own more than a quarter of the Treasury market, making their continued interest in U.S. bonds of paramount importance to the market. 

At the very least, the Treasury's shift, made earlier this month, is confusing traders, prompting some to second-guess the apparent strong interest in recent auctions. 

Indirect bids have been unusually strong of late, reaching a record 68 percent at Tuesday's two-year note sale, and exceeding 62 percent at Wednesday's sales of $37 billion in five-year notes. 

"We're not going to make much of that, given the information we've gotten on the rule changes," said John Spinello, fixed-income strategist at Jefferies, a primary dealer. "The indirect bids are now going to be higher given the change in procedures." 

Indirect bids are defined as ones that do not go through primary dealers, large banks that do business directly with the Fed and are required to actively take part in Treasury auctions. 

Top officials in China and Russia have expressed unease about the growing U.S. budget deficit, slated for a record $1.75 trillion in fiscal 2009 alone. This means that traders pay extra close attention to foreign demand figures. 

The Treasury's changes, contained in a June 1 entry to the Federal Register, relate to what it considers a "guaranteed 
bid." Under the previous arrangement, once a primary dealer offered securities at a pre-specified level to its customer, that bid was considered to be the dealer's own. 

The matter was technical enough to confuse even industry veterans. 

"We are not precisely sure what this all means," said Ward McCarthy, managing director at Stone & McCarthy Research Associates in Princeton, New Jersey. 

"We spoke with some very seasoned market players with decades of experience on dealer trading floors who were similarly unsure what to make of the contents of the Federal Register." 

The Federal Register entry can be found at 
http://www.gpo.gov/fdsys/pkg/FR-2009-06-01/html/E9-12787.htm
The Treasury was not immediately available for comment.

-END-

This is not good:

Moody's: Credit-Card Charge-Offs Surpass 10% In May

June 24, 2009: 10:07 AM ET

DOW JONES NEWSWIRES 

The annualized credit-card charge-off rate broke through 10% during May, according to Moody's Investors Service, the first time in the 20 years the credit ratings company has tracked the measure.

Also, the measure of credit-card defaults as a percentage of loans outstanding was at a fresh high for the sixth-consecutive month.

Credit-card operations at many banks are vulnerable as the unemployment rate has mounted amid the recession…

-END-

 

I promised you there was going to be action with respect to the Bank of America and the Fed.  Enjoy reading this:

Rep. Issa Says Fed 'Engaged in a Cover-Up' on Merrill-Bofa

June 24 (Bloomberg) -- U.S. Congressman Darrell Issa said the Federal Reserve "engaged in a cover-up" about details of Bank of America Corp.'s takeover of Merrill Lynch & Co. The Fed "deliberately hid concerns and pertinent details" of the merger from other government agencies, Issa, a Republican from California, said in an e-mailed statement.

-END-

Bill H: Bernanke attacked

To all; the Bernanke/Paulson/Lewis saga heated up as Congressman Darrell Issa attacked Mr. Bernanke for his alleged participation in the "blackmail" of Ken Lewis and Bank of America. What is of interest to me is that the Fed is now being attacked on two different fronts, first Congress (not the Senate yet) is calling for an audit while its head Mr. Bernanke is coming under fire for his role in the BoA/Merrill Lynch deal. Of course Mr. Bernanke says "who, me?", and the laugher was the indignation of the squeaky clean Jim Cramer on CNBC. Cramer was just "shocked" how anyone could question Mr. Bernanke's integrity. As for me, if I were being attacked for my ethics I don't think I would want Cramer front and center defending me. This is like calling Charles Manson to the stand as a character witness at a murder trial! It remains to be seen how far either of these two aggressions against the Fed get, but just the fact that they are under attack and the media is actually giving it coverage is certainly notable. This is just another thread of our fiat system being pulled at that will unravel simultaneously with umpteen other shady, fraudulent, and illegal matters. Regards, Bill H. 
http://news.yahoo.com/s/ap/us_bank_of_america

-END-

Even Warren Buffet cannot see any green shoots:

Warren Buffett to CNBC: U.S. Economy In "Shambles" .. No Signs of Recovery Yet
Published: Wednesday, 24 Jun 2009 | 11:52 AM ET 

By: Alex Crippen
Executive Producer

In a live interview on CNBC underway now, Warren Buffett says there has been little progress over the past few months in the "economic war" being fought by the country. "We haven't got the economy moving yet."

While the economy is a "shambles" and likely to stay that way for some time, he remains optimistic that there will eventually be a recovery over a period of years.

Buffett says the nation should concentrate on creating jobs.

Buffett also revealed that he had a cataract operation on his left eye about a month ago. He joked that he thought it might help him see "green shoots" for the economy, but so far he hasn't seen any hopeful signs. He's not concerned at all about deflation, but does think inflation will be a problem in coming years.

Buffett endorsed Ben Bernanke's reappointment as Federal Reserve Chairman, saying "you couldn't do better." He also praised Treasury Secretary Tim Geithner.

Asked about how Apple handled Steve Jobs' liver transplant, Buffett said it is a "material fact" when the CEO of a company is facing major surgery.-END-

end

 

Citibank is totally bust and now they are going to give their bankers a 50% raise!!  Here is the story:

OUTRAGE: Citigroup planning 50% salary increases

Tuesday, 23 June 2009 18:56 TRN Staff

New York, NY (TRN) -- In a stunning outrage, Citigroup plans to give salary increases of fifty percent (50%) to Bankers, Traders and Executives to halt an exodus of senior people from the company.

Apparently, these guys did such a terrific job (of wrecking the company) that Citigroup feels it needs to pay more to keep these folks!

Such is the insanity taking place in corporate America today. You dont fire the people who wrecked the company so badly that it needed to be bailed out by taxpayers to prevent a total collapse of the banking industry, instead you give 50% salary increases to the very people who wrecked the company in order to keep them employed…http://turnerradionetwork.com/index.php?option=com
_content&view=article&id=76:outrage-citigroup-planning-50
-salary-increases&catid=1:latest-news&Itemid=50

-END-

I have been telling you over the past few years about the IMF gold, the German Gold and the usa gold at Fort Knox.  I urge you to read the following commentary by Nicholas from Jo'burg:

Good Afternoon Bill, (from Johannesburg)

I have been an ardent GATA member for about five years now. As I trawl the internet in search of any new insights into the suppression of gold, I notice an increasing crescendo of references to the research and theories of GATA. GATA has conservatively not raised its estimate in the last five years that about 15,000 tons of Central bank vault gold has clandestinely and criminally been fed into the spot market in the last 15 years or so to suppress the physical price of gold.

What on earth is GATA talking about? Well for any newcomers to the GATA camp, let me provide a brief summary

USA gold reserves of 8,133 tons have not been sighted for nearly 60 years now. The best case scenario is that most (if not all) of this gold has long ago been fed into the spot market. The worst case scenario is that (irrespective of any few dregs of physical gold still remaining in USA custody), the original gold holdings are encumbered on a multiple basis i.e. The true position of USA gold hoardings/reserves may be SUBSTANTIALLY NEGATIVE. Anybody who believes that they have ownership of physical gold reserves because they have access to a paper trail that leads to claims on unaudited , non
existent gold allegedly stored in a USA depository must be among the most stupid people on the planet.

GLD has a reported ownership of 1,104 tons of gold. Surely even the most naïve of commentators does not believe that any more than half of this reported gold hoarding is represented by unencumbered physical vault gold holdings. Despite GAAP, IFRS, Sarbanes Oxley etc, there is no worthwhile independent audit evidence available in respect of the verification of the existence of this physical gold. It is amazing how the aforementioned standards of reporting and controls are NEVER, EVER applied to the custodianship of physical gold if the gold cartel or custodians associated with the cartel or Central banks are involved.

The worst case scenario would be that fractional reserving has been applied on an extreme basis and every time that Bernanke/Geitner/Summers needs immediate supplies of physical gold, the dwindling reserves of GLD are raided. Who can say for sure that the physical gold now held by GLD is any more than (say) 5% (or 1%) of the amount that should be present according to the GLD manifesto? Some of the most naïve investors on the planet must be those who believe that GLD shares can be converted into physical gold transfers in any kind of panic scenario or "run" on GLD.

The IMF gold reserves are currently reported at 3,217 tons. Give me a break on this one. Is there anybody so naïve as to believe that the 403 tons of gold that accrued to the IMF in trading activities after the Second Amendment and was subsequently stored with custodians closely associated with the heart of the cartel is still physically present and unencumbered. The (many times) proposed sale of this IMF gold will merely be represented by the close out of various swap/lease transactions with no physical gold available to hit the spot market. There could be a very real problem if any major investor decides (now that this IMF gold is allegedly in play again) to chase the physical purchase of this non existent IMF gold AND MOREOVER IS INTENT ON TAKING PHYSICAL DELIVERY.

As for the remaining +2,800 tons of IMF gold, all the evidence available suggests that this gold was only quota pledges of gold in the seventies and not physical transfers of gold to the independent custodianship of the IMF (which itself acknowledges that this "gold" is stored , once again, by the major players in the gold suppression scheme.) The worst case scenario (which I believe to be the closest to the truth , after hours of research) is that not only does the IMF own absolutely NO physical gold hoardings, but this alleged gold hoarding has ALWAYS BEEN DOUBLE COUNTED AS PART OF THE CONTINUING PHYSICAL GOLD RESERVES OF THOSE WESTERN CENTRAL BANKS THAT MADE THESE HISTORIC PLEDGES. There is nobody willing or able to prove this hypothesis to be wrong. But the IMF press officer gave GATAs' Chris Powell some
vague assurances that the IMF did indeed own physical gold, that is now, as always, safely stored with those selfsame custodians who have supplied the cartel all these years; so what can go wrong?

There has been some recent speculation that the Germans want their physical gold returned from the USA. Germany has a reported gold hoarding of 3,412 tons. In 2006, Axel Weber all but admitted that the Bundesbank had engaged in some gold swaps. The best case scenario is that Germany now wants only a return of the physical gold involved in those 2006 temporary gold swaps. The public certainly has no access to the amount of physical gold involved. The worse case scenario is that a substantial amount (or maybe most) of German Central Bank gold hoardings is not physically stored where it should be-bad luck Germany-any gold in this category is now relegated to the ranks of worthless paper gold pledges, which can now never be honoured in respect of delivery of physical gold.

Finally if you believe that the French, Italian and Japanese Central Banks have in there possession all the physical unencumbered vault gold holdings that have been reported for the last few decades, you must be one of the most trusting and fatally naive and plain dumbest people on the entire planet!

Last but not least, if you believe that the COMEX is still good for any sizeable deliveries of physical gold (or silver), then I profusely apologize to those people whom ,in the last paragraph, I have branded as the most stupid on the planet. Those believers in the integrity of the COMEX have full lien on this description.
Regards
Nicholas

June 24, 2009

 

I think you have a enough for one night.  I will speak to you tomorrow

Harvey.

 

 

 

 

Search This Blog

Loading...