Saturday, July 18, 2009

July 18.09 commentary

Good morning Ladies and Gentlemen:
First of all, the Federal Debt is climbing at a feverish pace.  Last night's official posting is:
11.5984 trillion dollars. (for a gain of 19 billion dollars)
The federal debt has been climbing rapidly.  At the end of June it was around 11.35 trillion dollars, so we witnessed a gain in debt of around 250 billion dollars in the month.
June is a traditionally good month of income receipts but lo and behold the month saw a rise in the debt of around 100 billion.
The gain in July has been unprecedented.  Why the big jump?
The total tax receipits by the Feds have been plummeting.  For the year 2009, it looks like total tax receipts will total about 1.6 trillion dollars.  The total expenditures  will surpass 4 trillion dollars, leaving a deficit of 2.4 trillion dollars.
The total interest on the debt for 2009 will be 457 billion dollars.  With 2 trillion dollars of added debt, a further 100 billion dollars of interest must be added to the bill.  Also  the  Fed is paying interest for the first time on bank reserves held,
So expect, total interest on the debt in 2009-2010 fiscal period to be around 560 billion dollars.
GDP is contracting at a 5.6% clip.  The GPD for 2008 was 14 trillion dollars, so the new GDP for 2009 will be around  13.2 trillion dollars.
The federal debt at 11.6 trillion dollars with a GDP at 13.2 trillion dollars puts the debt to GDP ratio at an alarming 88%,  The deficit per GDP per year is 18 per cent.(2.4 trillion dollars divided by 13.2)
At the conclusion of the fiscal 2009 year, the total debt is projected to be around 12.2 trillion dollars.  (Oct 2009).
It is projected that the federal debt by Oct 2010 will be 14.4 trillion dollars with GDP remaining stagnant at 13.2 trillion dollars or a debt to GDP at 108%.
No wonder the Chinese are sounding the alarm bells.You can bet the farm that the increase in the federal debt this week was due to 100% quantitave easing where the government sent freshly minted usa dollars bills over to foreign central banks who bought last weeks bond offerings with those dollars.
In other words, the process started with dollars and ended in dollars and this caused the federal debt to skyrocket.
The proof in the pudding is the TIC report.  It did not lie.  Foreigners are just not buying the usa bonds with their money.
If this were so, then we would see the usa dollar skyrocket as foreigners would cash in their currency for the dollar denominated debt. It just did not happen.
We are reaching a point in time where the usa cannot pay its interest.  With receipts at 1.6 trillion, the interest to total receipts is around 29%.  Next year it will be 34-35%.  This is totally unsustainable.
OK lets start with economic events of yesterday:
Gold closed up by 2.20 to 937.40.  Silver closed up by 15 cents to 13.38.
Both metals seem to be trading in a very narrow range and it is quite indictitive of lower amts of physical entering the market.  We may be getting to the stage whereby central banks including the usa may be reluctant to part with their precious metals.
The open interest on the gold comex rose by 3000 contracts as speculators seem to think that physical supplies are running out. Even silver's OI rose by 400 contracts.
Here are some numbers for yesterday:

The yield of the 10 yr T note rose to 3.65%.

The dollar ended the day up .18 to 79.48. The euro rallied later in the day as the DOW went up and only closed .0003 lower to 1.4101. The pound fell to 1.6330 and the yen dropped to 94.33.

The CRB rose 4.10 to 245.05.

The Dow rose by 32 points as the Fed is using all its printed money to shore up the Dow.  The long bond fell at 116.4
Here are some commentaries on the fabricated earnings over at Bank of America:

OK, one more mainstream news report, Liar Liar style. I swear I won't run it in the ground.

"Bank of America, in what can only be described as unmitigated gall, reported a 2.42 billion profit for the 2nd quarter. In a statement Ken Lewis said, "this is obviously a steaming pile of s---, our material condition is worsening by the hour". He further added "even this manipulated P&L we are showing would have been minus 2 billion if we hadn't pawned off China Construction Bank Corporation for 5.3 billion".

It is easier to show profits when 45 billion dollar injections are given by the taxpayer. Replenishing margin funds on trading accounts, and borrowing money free and then re-investing in fixed income assets are but a few of the privileges of being too big to fail. In a simulated trading platform trained chimpanzees produced similar results. The 3rd quarter earnings report should prove even more difficult for BoA to phony-up. BoA is already working feverishly to conceal the damage they know is approaching. With nonperforming assets having tripled to 31 billion, and credit card losses going vertical even pulling a rabbit out of a hat might not be enough.

The recent dust-up between Lewis and Hank Paulson is privately regarded as a charade. Both Lewis and Paulson would be sharing a jail cell with Bernard Madoff if it weren't for the blanket immunity both men enjoy with all regulatory bodies. Also any investigation into the pairs' criminal activities by mainstream media is severely limited due to resources largely being allocated to the Michael Jackson story. Criminal activity by dermatologists and pill-pushing doctors is far more interesting to our dumbed-down readers." 

And this from Citigroup's earnings:

Citigroup's reported profits are pure fiction

Citi benefits from a one-time non-recurring gain on the sale of Smith Barney and it turns liar loans into liar profits. Citigroup reported $4.3 billion in net income today. If you strip out the one-time gain of $6.7 billion from the sale of Smith Barney AND if you strip out the $1 billion of subprime asset mark-ups they took in the 2nd quarter, Citigroup actually LOST $3.4 billion. The sale of Smith Barney is a non-recurring event and should be classified as "extra-ordinary one-time gain" that is reported separately from operating income. The mark-up of sub-prime assets speaks for itself: pure accounting fraud, under old GAAP accounting rules. I am willing to bet that when Citi files its 10Q, we'll find out from its cash flow statement that Citi's operations actually consumed billions in capital.

The big story is CIT. Rumours at the end of the trading day surfaced that JPMorgan and Goldman Sachs were going to give these guys loans to prevent a bankruptcy.  The FDIC is on the hook for 3 billion dollars because CIT became a bank in December.  Here are some stories on this subject:
The CIT situation is more dire than reported. Since they became a "Bank Holding Company" the FDIC has taken over insuring over $3B in customer deposits. 

The problem is that the FDIC has almost no money left and will have to go back to Congress to refill the coffers! 

When word gets out Joe Public will begin to question the safety of FDIC insured institutions. 

Once a bank runs starts in earnest there is no stopping the situation. 

We are on the brink of the final crash where EVERYTHING blows! 
John Craig Roberts has published an article that you should all read.  I would like to point out that Mr Roberts was Assistant n Sec of the Treasury.   The article is also at my website for you to read.

Paul Craig Roberts: What economy? There's nothing left

Submitted by cpowell on 09:38PM ET Thursday, July 16, 2009. Section: Daily Dispatches

By Paul Craig Roberts
Thursday, July 16, 2009

There is no economy left to recover. The U.S. manufacturing economy was lost to offshoring and free trade ideology. It was replaced by a mythical "New Economy."

The "New Economy" was based on services. Its artificial life was fed by the Federal Reserve's artificially low interest rates, which produced a real estate bubble, and by "free market" financial deregulation, which unleashed financial gangsters to new heights of debt leverage and fraudulent financial products.

The real economy was traded away for a make-believe economy. When the make-believe economy collapsed, Americans' wealth in their real estate, pensions, and savings collapsed dramatically while their jobs disappeared.

The debt economy caused Americans to leverage their assets. They refinanced their homes and spent the equity. They maxed out numerous credit cards. They worked as many jobs as they could find. Debt expansion and multiple family incomes kept the economy going…

The price of 1-ounce gold coins is $1,000 despite efforts of the U.S. government to hold down the gold price. How high will this price jump when the rest of the world decides that the bankruptcy of "the world's only superpower" is at hand?…


Many have sent me this story, that the Swiss are running out of space to hold their gold.
It means that central bank gold is now moving into private hands:


Swiss banks running out of storage space for gold bullion

Worries about the economy and the success in marketing gold ETFs has seen Swiss banks finding difficulty in meeting secure storage requirements for gold bullion.

Author: Lawrence Williams
Posted: Friday , 17 Jul 2009



There are two articles presented at Jim Sinclairs site:
In the first, bankruptcies are rising exponentially and for the most part, they are chapter 7 bankruptcies not chapter 11  which entails reorganization:

Bankruptcy Filings up 33 Percent over a 12-month Period: Total 12-month Total of Bankruptcy Filings 1.2 Million. In last Report, Filings up 27 Percent in one month.

Bankruptcy filings are soaring in the United States.  In the last data point, we had 134,282 bankruptcy filings for the month of March 2009.  Bankruptcy data usually lags 3 or 4 months but the trend is ominous.  For the last 12 months some 1.2 million bankruptcy filings have occurred.  Much of this is linked to the26,000,000 unemployed or underemployed Americans being unable to pay their bills or even service their debt.  What is more telling is the amount of Chapter 7 bankruptcies occurring since these are straight liquidations and not like a Chapter 13 restructuring.

Let us examine the most recent data for bankruptcies that highlight this troubling trend:


What you’ll notice is a significant spike in the March data point.  This monthly jump was enormous.  This was the largest number of quarterly bankruptcy filings since December of 2005 when many were rushing to beat the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  Yet even with the law making it harder for people to file bankruptcy, most are being forced into austerity and it is hard to squeeze anything further out of a turnip.  What this tells us is that for average Americans there is still a significantly large amount of pain in the real economy.  The unemployment rate is understated by the 9.5 percent headline number.


If you want the complete story click on the read  more...

This is from the City of Philadelphia.  It is having budget problems because the state has frozen money earmarked for the City.

Running out of cash because of the state budget deadlock, the City of Philadelphia has stopped paying many of its bills until the impasse is resolved, City Finance Director Rob Dubow said this morning.

The city must temporarily withhold about $120 million in July and August to avoid running out of cash completely, Dubow said. Payments to contractors stopped Wednesday. Dubow, Budget Director Stephen Agostini and Treasurer Rebecca Rhynhart said that the city will pay its payroll, benefits, debt service and "emergency" contracts. The $4 million a month paid to foster parents, for instance, is considered an emergency, and other contracts will be considered on a case-by-case basis.

In a noon press conference, Mayor Nutter said the city would ask vendors to "understand where we are."

"We're asking them to work with us through this crisis," Nutter said.

The city is suffering for a number of reasons, all related to the state budget, city officials said.

First, the city anticipated receiving nearly $100 million in state payments in July and August that are frozen until a new budget passes. Second, the city is asking the legislature to approve a 1-cent increase in the sales tax, which would generate about $9 million a month, beginning Aug. 1. Third, the city had planned, as it does every year, to take out a $275 million, short-term "tax revenue anticipation note" or TRAN, which municipalities use to provide cash to cover expenses until their tax revenues are collected.

Without the expected state payments and sales tax revenues coming in, borrowing the $275 million would be prohibitively expensive, Dubow said.

“I have made repeated trips to Harrisburg over the last several weeks and I know that lawmakers are working hard to pass a fair and balanced budget,” Nutter said in a press release. “That said, the delay in the State budget process is severely impacting the City’s cash flow and we have no option but to take these difficult steps.”

Passage of the state budget would immediately solve part of the problem, though the city is also dependent on separate legislation to allow a sales-tax increase, and approvals to changes in the pension plan are needed before the city can borrow the $275 million with the TRAN, Dubow said.

Nutter said that "all new capital projects will be under stringent review."

"Over the next few days the City will review every capital project and will determine which can proceed in the absence of the passage of the State budget and the passage of legislation authorizing the City to raise the sales tax by 1% and make changes to its pension payments," Nutter's press release stated.

Even by suspending contract payments, the city cash on hand would dip to $111 million at the end of August. Agostini said anything under $150 million presents a potential problem for the city.

At a news conference outside his Harrisburg office, Rendell urged lawmakers to approve the 1-cent sales tax increase the city is asking for.


“It’s my hope that the state will do at least the one percent temporary increase in the Philadelphia sales tax. I stress temporary, and I think the citizens can believe the mayor when he says temporary," said Rendell who nevertheless predicted it won't happen until after the state budget is done.


Asked whether the city's predicament adds urgency to getting the state budget done, Rendell said: “I don’t think that can be the tail that wags the dog. I am concerned about it, just as I am concerned about our ability to meet our vendor bills. But look, this is so important to the state’s future…that we have got to get this right. As much as those short-term exigencies concern me, they can not be what motivates me.”

 Click here for's politics page.


This is Jim Sinclairs commentary on the Philadelphia story and on the CIT looming bankruptcy:

Jim Sinclair’s Commentary

You knew this was going to happen according to my 2006 Formula.

Still seeing it happen is shocking. This is not good for the US dollar or US debt. It will happen in 1000s cities and towns before this is over.

Dumping CIT, and it is dumped, is a terrible mistake. The purchase of bits and pieces will not avoid the awful implications of this mistake.

We are now seeing problems with the funding for NY City, Philadelphia, and Birmingham Alabama.

The following states are having real trouble with the funding:










I wish you all to have a wonderful weekend




Thursday, July 16, 2009

July 16.09 commentary

Good evening Ladies and Gentlemen:
The party continues on Wall Street with the Dow rising by 95 points on news that Nouriel Roubini thinks that we will start to see growth in 2010.  He also stated that he thought a second stimulus was needed.
The Federal Debt rose big time today :
11.579 trillion dollars  (from 11.526 trillion)
After the bell, Google announced better earnings but its stock is trading down.  IBM beat the street and its stock is trading higher in after hours trading.
As for gold:
The price of gold fell by 4.00 to 935.10,  Silver however was up 3 cents to 13.23
The open interest on gold advanced by 10,000 to 380,000 contracts.  The OI on silver hardly budged.
Here are some important numbers for today:

The gold open interest rose 9498 contracts to 380,007. Word is the Man Fund bought 10,000 lots. Weird silver went the other way. Its OI fell 330 contracts to 99,332.

The yield on the 10 yr T note is 3.55%.

The dollar fell .21 to 79.25.

The euro rose .0057 to 1.4150. The yen went up .56 to 93.74 and the pound rose slightly to $1.6444.

Crude oil rose 48 cents to $62.02.

The CRB went up 1.24 to 240.95. Everything was in place, outside market-wise, for gold to move higher. It did not because it closed yesterday right below $940. 

The dollar continues to fall where it is trading right now at 79.36.  The long bond is trading at 117.4   The yield on the 10 year note is 3.55%.
Many on the street are commenting on the Greenlight Hedge fund switch from GLD to metal over a 4 month period.
Many are wondering why the inventory of GLD is remaining the same with 4.2 million shares of the GLD being cashed in. Here is the story:

Yesterday’s news that Greenlight Capital switched 4.2 Mm shares of GLD into physical metal during Q2 is quite revealing, as the reported GLD bullion holdings changed hardly at all as this was going on. Greenlight’s had been the largest single holding in GLD. UBS remarks that a trend to this practice would call into question the utility of following the GLD reported holdings closely. Others may feel that is the least of the questions this news raises.


Dennis Gartman, strangely came out with this comment today on Adrian Douglas' finding that the comex is settling their deliveries with paper and not physical:
"To finish, we do agree that recent decisions to allow for the "delivery" of ETF shares in the stead of actual physical gold against a futures position does cause us some concern. Indeed, it causes us some very real concern, for if we stand for delivery of wheat we expect to receive wheat, not paper. The same holds true for delivery processes on the COMEX, and if GATA and the "Bugs" have a complaint it is this new decision by the COMEX. On this, we’ll grant that the "Bugs" have something to complain about."
We reported that Goldman Sachs had big earnings on Wednesday.  It looks like 1 billion dollars of earnings was from the sale of the Commercial Bank of China , a non recurring gain. 
Here is the story:

Just glanced at Goldman's earnings release

We won't be able to see the source of the huge trading profits until they file a 10Q, but if you strip out the gain $948 billion they booked on the sale of their shares in Commercial Bank of China Ltd, they had no revenues in the Principal Investments segment. So the sale of that stock, a one-time and non-recurring event, added close to $1 billion to GS's "non-interest" revenues in Q2. We will also be able to see how much the sale of that stock added to net income once the 10Q is filed. Did CNBC mention all that yesterday?


The jobless numbers came out today and it showed a seasonally adjusted fall in jobless.  First the official story and then the real story:


US jobless claims drop, again skewed by autos 

WASHINGTON, July 16 (Reuters) - The number of U.S. workers filing new claims for jobless benefits fell sharply last week 
to the lowest level since January, but the seasonally adjusted data was again distorted by an unusual pattern of automotive industry layoffs that amplified the drop. 

Initial claims for state unemployment insurance fell 47,000 to a lower-than-expected seasonally adjusted 522,000 in the week ended July 11, the Labor Department said on Thursday. Analysts polled by Reuters had forecast claims to be unchanged at 565,000 last week. 

A Labor Department official said that far fewer layoffs than anticipated based on past experience in the automotive sector and elsewhere in manufacturing accounted for both the large drop in seasonally adjusted claims last week and in the very steep decline in so-called continued claims.

and now the real story:


Unadjusted Year Over Year: Labor Department Initial Jobless Claims Up 38%

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

  • Associated Press Headline And Lead: "Jobless claims drop, but clouded by auto shutdowns... The number of newly laid-off Americans signing up for unemployment benefits last week, and those using this safety net over a longer period, both plunged."
  • Labor Department News Release: click here.
  • Key Numbers: "The advance number of actual initial claims under state programs, unadjusted, totaled 667,534 in the week ending July 11, an increase of 86,389 from the previous week. There were 483,981 initial claims in the comparable week in 2008." NOTE: In 2006, when the economy was good (remember "Stronger For Longer?"), this number was around 280,000.
  • My Spreadsheet (click Download 20090716yoy).

Here's my uneducated interpretation - First of all, unadjusted, initial claims are up 20% from last week. Wow, that's a lot of seasonality! How can that big a shift in seasonality be accurately removed? Unadjusted claims are the biggest I've seen since I started recording numbers (see blue with diamonds line). Secondly, I'm adjusting my target threshold for the economy bottoming from 350,000 to 400,000 based on a decade-long look at the numbers (see below). We are still way above this revised target for the economy bottoming. This is the highest unadjusted number since I started paying close attention in early May 2009, but there is a seasonally unadjusted spike this time of year every year (again, see below).

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

Here's a decade-long look at the Initial Jobless Claims supporting my the view that:

  • A target of under 400,000 seems necessary to conclude that the economy has bottomed.
  • The current downturn is way worse than the post-Internet bubble recession.


If the economy was booming, I would expect to see commercial paper rising in quantity.  I am not seeing this.  I am seeing the opposite:

US commercial paper market resumes contraction -Fed

NEW YORK, July 16 (Reuters) - The U.S. commercial paper market shrank in the latest week as the global credit crisis and protracted economic downturn continued to erode it, Federal Reserve data showed on Thursday. 

For the week ended July. 15, the size of the U.S. commercial paper market, a vital source of short-term funding for routine operations at many companies, fell by $39.7 billion to $1.097 trillion outstanding, from $1.136 trillion outstanding the previous week. 

The erosion of the commercial paper market had stalled last week for the first time in nearly three months, but some analysts then warned that reading might have been skewed by the start of a new quarter. 

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


00:27 US commercial-paper market shrinking at record pace - Bloomberg
Federal Reserve data shows the market for company debt due within nine months is down (26%) since 8-Apr to $1.1T. The development raises the cost of capital for borrowers; the article specifically cites Consolidated Edison (ED), Kellogg (K), Verizon (VZ), and American Electric (AEP) as victims. SEC proposals may restrict money-market funds, which hold 40% of the paper, to only top-rated debt, which would worsen the slump. 


The Philly manufacturing index fell badly today and did not mirror NY's improved data:


Philly Fed factory activity falls in July 

NEW YORK, July 16 (Reuters) - Factory activity in the U.S. Mid-Atlantic region contracted for the 10th consecutive month in July, a survey showed on Thursday, posting a worse than expected decline. 

The Philadelphia Federal Reserve Bank said its business activity index was at minus 7.5 in July versus minus 2.2 in June. 

Economists polled by Reuters had forecast a reading of minus 5.0. Their 51 forecasts ranged from minus 10.8 to positive 3.0. 

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

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




Many of you are aware that I believe the single most important data to be released in the month is the TIC report.  It is a report on the monthly flow of dollars in or out of a country.

The usa has a huge deficit and needs a flow of money into the country to feed its deficit.

For the last 4 months out of 5, we have seen a net flow out of the usa:

09:03 May total net TIC flows ($66.6B) vs. consensus ($11.2B)
Prior revised to ($38.0B) from ($53.2B). 

It will be very difficult for the dollar to hold if foreigners are cashing in their forex.

Here are some commentaries on this and other stories of the day:

Today’s significant news: Treasury International Capital Flows showed capital flowing out of the U.S. for 4 out of the last 5 months. Philadelphia Fed Index came in -7.5 vs. -2.2/ prices paid -3.5 vs.-13 / employment -25.3 vs. -21.3. One more regional survey showing pricing recovering faster than employment which is totally contrary to mainstream economists and the Fed’s output gap models, which claim inflation cannot occur at record low capacity and employment utilization. The NAHB survey is 17 vs 15. This is a diffusion index which would have to rise over 50 to show an expanding homebuilding market. MGIC announces they are in the process of discontinuing writing mortgage insurance because the mortgage business is unprofitable without 20% down. CIT on the edge of bankruptcy, the largest lender to small businesses. The bottom line is today’s reports show an economy where housing and mortgage business are still disasters and credit to consumer and small businesses are more likely to get tighter than looser. Any bottoming seen in the economy looks more like stagflation than traditional early economic recovery. Domestic and foreign investors are responding by moving their capital out of the country. The markets response: Stocks Up, Bonds Up, Dollar Flat, Gold Down, Oil Down.



Foreclosures continue to skyrocket.  Remember this is collateral for the banks:


Foreclosures at record high in first half 2009 despite aid 

NEW YORK (Reuters) - U.S. home foreclosure activity galloped to a record in the first half of the year, overwhelming broad efforts to remedy failing loans while job losses escalated. 

Foreclosure filings jumped to a record 1.9 million on more than 1.5 million properties in the first six months of the year, RealtyTrac said on Thursday. 

The number of properties drawing filings, which include notices of default and auctions, jumped 9.0 percent from the second half of 2008 and almost 15 percent from the first half of last year. 

"Despite everybody's best efforts to date we're not really making any headway against the problem," Rick Sharga, senior vice president at RealtyTrac in Irvine, California, said in an interview. 

Loans that were temporarily frozen by various state and federal programs, which mostly ended in March, started pushing through the process in the past three months. 

One in every 84 households with loans got at least one foreclosure filing in the first half of this year. 

"I don't think this suggests the economy is any worse than anyone expected but I certainly don't think it shows by itself any signs of improvement," Sharga said. 



However, usa home builders sentiment rose last month for the first time:

US July home builder sentiment highest since Sept 

NEW YORK, July 16 (Reuters) - U.S. home builder sentiment in July jumped to its highest level since September 2008 as improved sales conditions boosted confidence in the market for new single-family homes, an industry group said on Thursday. 

The National Association of Home Builders said its preliminary NAHB/Wells Fargo Housing Market Index was 17 in July, up from 15 in June. 

Readings below 50 in the index, which was launched in January 1985, indicate more builders view market conditions as poor than favorable. The July index was above expectations of 16, based on a Reuters survey of economists. 

The rise in home builder sentiment is a positive for the U.S. housing market, which has been showing some signs of stabilization, with sales rising and home price declines moderating in many regions of the country. 

"Builders are seeing slightly better sales conditions this month as consumers take advantage of the first-time buyer tax credit, low interest rates and attractive home prices," NAHB Chairman Joe Robson, a home builder from Tulsa, Oklahoma, said in a statement. 

The government's $8,000 tax credit for first-time home buyers, part of the economic stimulus package, is helping boost sales. 

But there is concern about what lies ahead, Robson added. 

"A true recovery in the housing market and overall economy cannot take place until the continuing foreclosure crisis is abated and a decent flow of credit is restored to housing production," Robson said. 

"Meanwhile, the stalled jobs market is a major concern to builders and potential home buyers alike," he said. 

The gauge of current single-family homes sales rose to 17 from 14. The index of sales expected in the next six months, however, was unchanged at 26. But the measure of prospective-buyer traffic climbed, rising to 14 from 13, the group said. 

The U.S. housing market is suffering the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down home prices.


CIT stock plummeted today to 38 cents as the Feds have decided not to bail these guys out.

Now the bondholders are meeting to convert their bonds to stock:

CIT Group’s Bondholders Said to Discuss Debt Swap

July 16 (Bloomberg) -- CIT Group Inc. bondholders are holding calls today to discuss whether to swap some of their claims for equity to reduce the 101-year-old lender’s indebtedness, according to a person familiar with the situation.

Pacific Investment Management Co., CIT’s largest bondholder based on regulatory filings, plans to host a call, and debt owners are considering hiring financial and legal advisers, said the person, who declined to be identified because the discussions are private. The company hasn’t proposed an exchange offer.

CIT is running short of cash and may need as much as $6 billion to avoid filing for bankruptcy protection, after the U.S. wouldn’t give the firm a second bailout, CreditSights Inc. analysts said. CIT, which has reported $3 billion of losses in the last eight quarters, received $2.33 billion in funds from the U.S. Treasury in December and hasn’t been given access to the Federal Deposit Insurance Corp.’s debt-guarantee program…


CIT is the largest bank dealing in factors  ie. they lend on receivables.  If these guys go bust tomorrow it will be very difficult for millions of clients to get new lines of credit.  This will be worth watching!!

I will leave you with this funny parody of Wall Street:

Goldman Sachs in Talks to Acquire Treasury Department

Sister Entities to Share Employees, Money

In what some on Wall Street are calling the biggest blockbuster deal in the history of the financial sector, Goldman Sachs confirmed today that it was in talks to acquire the U.S. Department of the Treasury.

According to Goldman spokesperson Jonathan Hestron, the merger between Goldman and the Treasury Department is "a good fit" because "they're in the business of printing money and so are we."

The Goldman spokesman said that the merger would create efficiencies for both entities: "We already have so many employees and so much money flowing back and forth, this would just streamline things."

Mr. Hestron said the only challenge facing Goldman in completing the merger "is trying to figure out which parts of the Treasury Dept. we don't already own."

Goldman recently celebrated record earnings by roasting a suckling pig over a bonfire of hundred-dollar bills.

Elsewhere, conspiracy theorists celebrated the 40th anniversary of NASA faking the moon landing.

And in South Carolina, Gov. Mark Sanford gave his wife a new diamond ring, while his wife gave him an electronic ankle bracelet.



see you on Saturday









Wednesday, July 15, 2009

July 15.09 commentary.

Good evening Ladies and Gentlemen:
Gold rose sharply today up by 16.60 closing at the resistance line of 940.00  Gold's finished at 939.60 and silver was up  37 cents to 13.27.
Gold and silver responded to news of a strong CPI number and news that China's forex has climbed above the 2 trillion mark:
Dollar falls as China reveals record stockpiles 

Published: July 15 2009 11:34 | Last updated: July 15 2009 11:34

The dollar fell to its lowest level in two weeks on Wednesday as China revealed it had amassed record cash stockpiles, while improving investor confidence stemmed haven demand for the US currency.

Analysts said positive earnings surprises from Goldman Sachs, the US bank, and Intel, the chipmaker, had boosted risk appetite, pushing investors away from the relative safety of the dollar and into riskier assets. 

Furthermore, news that China's foreign exchange reserves, the world's largest, had grown by a record $178.3bn to $2,130bn in the second quarter also weighed on the dollar.

Analysts said the largest increase in reserves was in the month of May, when the dollar weakened sharply as Treasury yields in the US rose. Fear of a weaker dollar contributed to inflows to China, sparking offsetting intervention by the Chinese authorities to stem strength in the renminbi.

Ashley Davies at UBS said over the long-term China's policies were clearly unsustainable and supported his view that the dollar would structurally weaken over 2010 and 2011.

He said the rapid reserve accumulation explained why China had been more vocal of late in calling for an alternative reserve currency.

But Mr Davies added that in the short term, the sheer pace of accumulation would suggest that China was having difficulty in diversifying its FX stockpiles.

Analysts estimate that the Chinese authorities hold about 65 per cent to 70 per cent of their reserves in dollars, with the rest in other currencies including the euro, pound, yen and perhaps the Australian dollar.

Thus rapid accumulation of dollars by the Chinese authorities puts downward pressure on the US currency as they seek to maintain the balance within their reserves.

"If the bulk of the intervention was in dollars, then China may need to quietly accelerate diversification going forward, benefiting other major currencies such as the euro, yen and Australian dollar," said Mr Davies.


Here is the CPI story:


U.S. consumer prices rise 0.7 percent in June 

WASHINGTON, July 15 (Reuters) - U.S. consumer prices rose at a slightly faster-than-expected 0.7 percent pace in June, but the bulk of the increase was due to soaring gasoline prices and the core measure of inflation remained relatively tame, government data on Wednesday showed. 

The Labor Department said the rise in the Consumer Price Index was the largest since July 2008. Wall Street analysts polled by Reuters had forecast a 0.6 percent increase, compared with the 0.1 percent gain reported in May. 

Gasoline prices jumped 17.3 percent last month, the largest increase since September 2005, and explained the bulk of the increase in the headline index, the Labor Department said. 

Compared to the same period last year, consumer prices fell by 1.4 percent, which was the biggest decline since January 1950, when prices fell 2.1 percent, a Labor Department official said. Gasoline prices compared with a year ago were 34.6 percent lower. 

Stripping out volatile energy and food prices, the closely watched core measure of consumer inflation rose by 0.2 percent in June, which was slightly more than the 0.1 percent forecast increase. Core prices compared with a year ago rose 1.7 percent, the smallest rise since a matching gain in January.



Here are some numbers for today:

The gold open interest rose 1288 contracts to 370,509. Moribund silver saw its OI fall 272 contracts to 99,662.

The yield on the 10 yr T note rose to 3.60%.

The dollar fell .63 to 79.36.

Geez, another surprise. The euro rose sharply when the DOW rose sharply. There is some connected trading program between those two. The euro .0134 to 1.4111. The pound gained .0084 to 1.6420. As usual, the yen went the other way, losing .70 to 93.32.

Crude oil put in a stellar day, rising $2.25 per barrel to $61.75.

The CRB gained 3.51 to 239.71.



Please note that the 10 yr bond rose in yield to 3.60 percent from 3.36% on Friday.  The long bond fell from 118.50 all the way down to 116.40.
Today, the inflationists had their say.  In days like today, the Dow will rise, bonds will fall in price, gold will rise and the dollar will tank.
When deflationists have their way, the Dow will sink, bonds will rise, gold will fall and the dollar will rise and Euro sink.
This same scenario has been going on for the past few months.
Yesterday, I forgot to mention the gold sales from Euroland.  They were a paltry 0.27 of a tonne.  This was no doubt a call on some gold at an ECB bank.
Troubles still are surfacing at CIT.  The stock was strong today with rumours of a bailout:

Derivatives Crisis: More Bailouts on Deck?

As you know, CIT is deeply troubled, and most likely heading towards some sort of managed bankruptcy. The company is said to be holding counter party risk with many banks including Goldman Sachs. The rally may be based on strong rumours of an imminent bailout for CIT. The word on the Street is that Geithner caved again.

Let's see how the Obama Administration handles yet another financial institution brought low by bad risk management in pursuit of outsized profit.


Manufacturing in the NY area seems to be improving:
08:30 Jul Empire Manufacturing (-0.55) vs. consensus (5.00)
Jun reading was (9.41). 
* * * * *
Industrial production fell slightly last month:

U.S. industrial output falls 0.4 percent in June 

WASHINGTON, July 15 (Reuters) - U.S. industrial production fell a smaller-than-expected 0.4 percent in June, according to Federal Reserve data on Wednesday that suggested the pace of recession eased in the second quarter. 

Economists polled by Reuters had expected a 0.6 percent decline in industrial production, after a 1.2 percent drop in May, initially reported as a 1.1 percent fall. 

For the second quarter as a whole, output fell at an annual rate of 11.6 percent, a more moderate contraction than in the first quarter when production fell at 19.1 percent rate. 

The capacity utilization rate, a measure of slack in the economy, fell to 68 percent, the lowest level on records dating back to 1967. 

Both manufacturing and mining output fell, while production from utilities increased.


USA mortgage applications rose sharply with the lower rates last month:

US mortgage applications rise as interest rates tumble 

NEW YORK, July 15 (Reuters) - U.S. mortgage applications rose for a second straight week, driven by a jump in demand for home refinancing loans as interest rates tumbled, data from an industry group showed on Wednesday. 

However, demand for home purchase loans, an early indicator of home sales, fell to its lowest level since late-May. The drop does not bode well for the hard-hit U.S. housing market, which is plagued by a huge supply and demand imbalance amid mounting foreclosures. 

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications , which includes both purchase and refinance loans, for the week ended July 10 increased 4.3 percent to 514.4. 

Diane M. Ramirez, President of Halstead Property in New York, said confidence is the driving factor behind home sales and when interest rates on mortgages moved higher in late-May and early June it spooked some potential home buyers…


The following is the big story of the day.  David Einhorn of Greenlight Capital fund, a rather large hedge fund switched all of his GLD into pure metals.  Adrian Douglas has supplied Einhorn with data over the past 4 months and I guess he thought that GLD and SLV are fraudulent vehicles.  Here is the article:


Einhorn's Greenlight Hedge Fund Switches Gold ETF to Bullion 

July 14 (Bloomberg) -- Greenlight Capital Inc., the $5 billion hedge-fund firm run by David Einhorn, told investors it switched all of its holdings in a gold exchange-traded fund into bullion during the second quarter. 

The New York-based fund said the cost of keeping gold in a storage facility is less than it paid in fees for the SPDR Gold Trust, according to a letter sent to investors yesterday. 

Greenlight, started by Einhorn, 40, in 1996, told clients in January it was buying gold for the first time amid the threat of inflation from higher government spending. The firm held 4.2 million shares of SPDR Gold Trust in the first quarter, making the gold-backed ETF its biggest holding. 

The firm's Greenlight Capital LP fund gained 16.3 percent in the second quarter, bringing its return this year to 21.5 percent, according to the letter, a copy of which was obtained by Bloomberg News. The fund lost 23 percent last year. 

Hedge funds returned an average 9.4 percent this year through June after losing 19 percent in 2008, according to Hedge Fund Research Inc. in Chicago. 

Steve Bruce, a spokesman for Greenlight, declined to comment on the fund's switch. 

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising prices and participate substantially in profits from money invested.



Dave from Denver believes that many will follow Einhorns lead and switch to the pure metal if they can get it.  He believes a commercial failure is imminent.

Deliveries are taking forever to clear to those individuals who want to take the physical metal out of the comex.  For those that wish to keep their metal at the comex you are getting SLV or GLD paper:


Dave from Denver…

I think a lot of funds like Greenlight are going to dump GLD and move into physical. Gold popped in the middle of London trading on no news. I'm not saying my report on GLD inspired Greenlight, but I sent it to the firm twice - once in late Feb and once about a month ago. And there's some other research work out there on GLD. I'm sure his analyst looked at the GLD prospectus and came to the same conclusion we have about GLD. The point is, I'm seeing ALL kinds of signs of that there is a massive shortage in physical brewing, and I believe one of the sources is the Comex not having enough physical to cover investors who are taking custody of their metal. Our guy at our depository told us yesterday he has a few customers waiting for delivery from April silver contracts. And he said that there's definitely been a huge surge in investors moving their safekeeping from the Comex to their own custody. In my humble view, we are inching much closer to a Commercial Signal Failure than anyone realizes.


Bart Chilton responded to many on the speculation position limits at the CFTC on silver and gold.  Here is his response to many:

Statement of CFTC Commissioner Bart Chilton on Speculative Limit Hearings and Increased Transparency
July 7, 2009

These hearings are an excellent starting point to address a significant issue, that is, how to ensure that speculative activity in the marketplace does not distort prices. First, we need to look at the issue of spec limits generally; we've got federally-set spec limits in ags, but not in other physically delivered commodities, like oils and metals, and we need to see if it's appropriate for the CFTC to set limits in those commodities as well. Oil, for example, is certainly as important a commodity as wheat, and, as we saw last summer when the price of oil skyrocketed out of control, federally-set spec limits may have been able to provide some needed "speed bumps." Second, we need to look at whether exemptions that have been granted with regard to these limits are appropriate. This involves a review of our fundamental concept of "bona fide hedging"; specifically, should that include entities that are primarily involved in financial hedging, and not in the actual commercial dealings in underlying commodities? We need to drill down on this issue, and figure out how best to craft this definition to protect consumers and markets. We need to have an in-depth and comprehensive analysis of this, to ensure that appropriate speculative activity is permitted, but that activity causing uneconomic price moves is prohibited.
On enhanced transparency issues, that is improved COT reports and the swaps report, I want to commend our chairman for moving ahead in this venue as well. I'm glad to see he has announced a needed revamping of our Commitment of Traders reports, which is long overdue. This is intended to 1) separate swaps dealers out of the current commercial category, 2) separate hedge funds and other managed accounts out of the current non-commercial category, 3) include data from foreign contracts that are "linked" to domestically traded contracts, and 4) include data from significant price discovery contracts. I look forward to getting comment from the public as to what they think of this new report, and whether additional improvements can be made. Lastly, until we have authority granted by Congress increasing our ability to look into "dark markets," I think we need to continue to improve our information gathering related to our swaps "special call"; this information is only as useful and reliable as the data we receive, and I believe we must also continue to improve our scrutiny of this information to ensure its utility to us and to the marketplace.


We are now catching some ETF's with exactly the same serial numbers on silver bars:

Just in from a fellow CafĂ© member…

Warnings to Precious Metal ETF Investors - Buyer Beware!

The London based ETF Securities Silver Fund regularly publish a list of serial numbers of the silver bars they hold in custody: iShares Silver Trust (SLV) also publish a weekly updated list of serial numbers of silver bars held in their custody:
Check out page 1698-1722 of the SLV silver bars list. They have got some silver bars from China. The brand is Great Wall. The supposedly unique serial numbers are from No. 1001 - No. 1460. With many duplications.

The ETFS's silver bars list also contains silver bars of the same Great Wall brand. The serial numbers are also the same: No. 1001 - No. 1360.

Ah oh! Hmmmmm...?



This is Adrian Douglas's commentary on the CFTC position limits:

Position Limits…

The CFTC Enforcement Division has been investigating the possible manipulation of the silver and gold market for over 9 months. What takes so long? It is not like trying to find a serial killer among 340 million Americans. We know that the manipulators could only be the entities that hold large positions on the COMEX, so that narrows the investigation down to about 4 possible suspects and then they don't need to go wire tapping or finger-printing they have all the market data they need. It is NOT rocket science.

But wait a minute we are now hearing that the CFTC is going to impose position limits and the gold and silver markets were specifically referenced by Bart Chilton. The only reason a rule change that would apply position limits would be proposed is that it is recognized that position size is currently a problem. In other words that the gold and silver markets are manipulated by excessively high short positions (Duh! As if we hadn't spotted that with the CFTC's own COT and Bank Participation reports!! And it didn't take us 9 months to work it out!).

Is this all we are going to get? Are we going to get the fix without ever admitting there was a problem? If it is then I am sorry to say it is not good enough for me. If the massive manipulation isn't categorically recognized and STOPPED including people punished for it, then the new position limits will just get abused like the current commodity law. The latest fashion among regulators is to pretend that it wasn't that there was lax regulation that caused the financial meltdown it was because we didn't have enough rules!! When 2 or 3 banks hold 85% of the net short position in a commodity they are breaking commodity law. We don't need any new rules. If I owned even 10% of the commercial net long position the FBI would be knocking on my door! When 5 US banks control over 96% of 201 T$ of notional value of derivatives as reported by the latest OCC report they are breaking the law. Period! punishing people for breaking the existing law then all you do when you change the law is to encourage them to break that one too (and to have a big fat laugh at how stupid the regulators are and how smart they are!). When the CFTC impose position limits watch the Cartel have a myriad of offshore subsidiaries holding short positions. Instead of one Cartel bank holding 30,000 contracts short then 20 mini Cartel entities will miraculously start trading on the COMEX and as their names are all kept secret for reasons of increased transparency (cough, cough) we won't know they are JPM 1, JPM 2, JPM 3, etc.

The head of the CFTC is ex-Goldman Sachs. I have yet to see any ex-Goldie in a government position implement anything that hurts Goldman Sachs…but may be Gary Gensler will be the first….ooops, was that a Lean Hogs futures contract that just flew over my roof?

The manipulation of the gold and silver markets will end with people getting fed up of waiting for regulators to do their job. They will simply buy real physical gold and silver and stand for delivery and the fraud will be exposed. The news that Greenlight Capital switched their GLD shares for real bullion is fantastic news think this could be the start of a Ghandi style bloodless revolution that will blow the Cartel out of the water and expose the regulators for the worthless, procrastinating bunch of government paper pushers and Cartel apologists that they really are.

Let's applaud Greenlight Capital for having cast the first stone!

Just like the Olivia Newton John song of the same name "Let's Get Physical"!


speak to you tomorrow




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