Saturday, July 25, 2009

July 25.09 commentary

Good afternoon Ladies and Gentlemen:
Last night I emailed this to the chairman of the CFTC:
Dear Mr Gensler:
I would like to point out to you that the inventory level at the GLD  is dropping. In the past few weeks the inventory of gold fell from 1104 tonnes to 1086 tonnes.
It has been reported that Greenlight Capital ( Mr David Einhorn CEO), sold 4 million shares of GLD and converted it to physical gold.  The process took 4 months to complete.
When questioned, Mr Einhorn told the press that he tendered his shares for bullion.
Since this announcement there have been other firms who have announced sales of their GLD.  All are converting to physical metal:   here are the table of sales of GLD shares sold and by whom. 

Augustine Asset Management - 1.9m

Churchill Management Group - 0.4m

CI Investments - 424.7m

Manley Asset Management - 1.1m

Pate Capital Partners - 4.54m

TD Securities - 2.0m

United Financial - 7.1m

It seems that many hedge funds strongly believe that there is no metal behind the GLD.  This is the first time we have seen that gold has been rising and that inventory at the GLD contracted.


There have been many write to you concerning the settling of accounts on the comex gold with the GLD.  Personally, I do not believe that this is possible.

However, I am very alarmed that the CFTC does not refute this.  Why don't you just state categorically that the CFTC does not settle in paper, only with physical bar numbers.

I also noted that the CFTC was conducting open forums on position limits with respect to energy issues.

When can we expect that you address the gold and silver issue?



Harvey Organ



OK lets start with yesterdays events.

Gold held well yesterday falling by only 1.40 to 953.70.  Silver rose by 9 cents to 13.87,


The markets initially were extremely disstraught over the earnings of American Express and Microsoft.

They were disappointed with the earnings of  Basically, we are witnessing deteriorating financial figures from the "Main Street" of the economy as opposed to the banking  "Wall Street"  economy.

As for the gold comex OI, it fell by 3000 contracts to 391000.  Silver hardly budged.

Gold got a boost yesterday with the fall of the dollar.  It retreated all the way down to 78.49 until recovering to around 78.85. I guess it was difficult to raid gold with such a weak dollars.  The cartel put off the raid until they get the dollar higher.

After the close, the COT report disclosed a massive shorting of gold by the cartel banks.  Specs were the buyers and the banks supplied the paper:

As expected the gold COT report revealed the specs piling in while The Gold Cartel sold...

*The large specs increased their longs by 15,565 contracts and increased shorts by 1,067 contracts.

*The commercials reduced longs by 3,883 contracts and increased shorts by 18,056 contracts.

*The small specs increased longs by 6,041 contracts and reduced shorts by 1,400 contracts ... a big turnaround for the little guys.




Generally, when I see this, a raid is forthcoming.  Commercials are loading the wagon with shorts and they generally orchestrate a raid to relieve them of their gorged shorts.

Here are some numbers from yesterday's trading:


The yield on the 10 yr T note is 3.66%.

The dollar fell .22 to 78.75.

The euro went up .0048 to 1.4211.

Crude oil rose 89 cents to $68.05 per barrel.

The CRB went up .64 to 68.05.




the yield on the 10 year note rose a bit to 3.66% and the long bond stayed around the 116.00 level.

The usa dollar closed the regular session at 78.75 and then rose in the aftermarket to 78.85. We are still seeing strong evidence of inflation brewing in the usa.  Watch the Euro.  If it breaks above 143.00 there will be no resistance until it hits 1.55.


The fall in the dollar certainly does not bode well for inflation.

I will state that it will be impossible to the usa authorities to reign in inflation once it lashes out on society.

OK lets go for the economic news of the day:


First, University of Michigan sentiment showed a decline in June:

09:55 Jul Univ. of Michigan Confidence 66.0 vs. consensus 65.0
Prior reading was 64.6. 
* * * * *

U.S. consumers' mood wanes in final July read: survey 

NEW YORK (Reuters) - U.S. consumer confidence waned in late July to the lowest reading since April on growing pessimism about the long-term economic outlook, a survey showed on Friday, even as some economists reckon the longest recession in decades may be easing. 

The Reuters/University of Michigan Surveys of Consumers said its final July consumer sentiment reading fell to 66.0 from June's 70.8, though it was slightly higher than economists' median expectation for a reading of 65.0, according to a Reuters poll. 

The index of consumer expectations fell to 63.2 in July's final reading, from 69.2 in June. 

"Consumers believe that the economic free-fall is now over, but consumers see little reason to believe the stimulus policies will improve their financial condition anytime soon," the Reuters/University of Michigan Surveys of Consumers said in a statement. 

Lower income and less favorable job prospects in the next year are key factors making consumers anxious about their financial position, the statement said. 

The current conditions index slipped to 70.5 in the final July reading, from 73.2 in June.


Here is a commentary on the housing gain on Thursday.  As I pointed out to you then,  most of the sales were foreclosures:


Housing's Endless Downward Spiral

When you strip out the unit gains achieved by revising down the previous month's reported number, and take away the foreclosure/short sale volume out of the housing numbers, you conclude that not only is the market NOT "stabilizing," but that the housing market is still in state of freefall, albeit a freefall that is slowing down a bit (not necessarily any sign of stability, as you would expect that the rate of decline would slow down over time anyway).

What will add fuel to the decline in the value of housing is the surging number of rental units. And this is occurring despite a big shift in the market from buying to renting. As Calculated Risk reports today, the rental vacancy rate is at an all-time high:

As rental vacancies surge, rents will decline and this will put further downward pressure on the price people are willing to pay to buy a home. This is a vicious downward spiral which will not stop until the supply and demand equation balances out. Right now there were just way too many housing units - both homes and apartments - that were built in the last few years and prices are way to high right now to foster any semblance of supply/demand balance.

Anectdotally speaking, at least in Denver, I'm seeing more and more "for sale" and "for rent" signs being posted all over the city, especially in areas didn't seem to have much on the market. I know the guy who owns the 3-unit townhome complex I live in and has the middle unit on the market for about 15% less than was originally being asked for a year ago as a brand new unit told me that he's had only 8 showings in 4 weeks and the only comments were that 2 of the showings inquired about renting. I live in an area that was one of the hottest markets during the bubble.

My best guess is that, overall across the country, we will see housing prices decline at least another 20-30% before we reach anything that can be considered a bottom. And that bottom could drift sideways for a very long time.

*** Dave (Denver)

I pointed out to you trouble brewing between the Bank of England, politicians, and the House of Representatives with respect to the purchasing of debt by the Bank of England for its own account i.e. Q.E.


please read these exchanges:


Is the Consequential Storm of QE just beginning!..

Headline of UK FT today read 
Investors blast Bank over Gilts Sell off,..

It appears that comments from a member of the Bank of England, following a large completed bond auction, led to a sell off in the gilts just purchased,..

His inference was deemed to imply that Quantitive Easing was to be put on hold for the near term,..

It shows how reliant the gilt markets are becoming on the participation of the ‘Buyer of last resort’,..

Having opened this box back in February with the proposal to QE, the BOE is now in a very tight spot,.. Should they stop QE now, it will act as a double negative on the gilt markets, both removing the largest purchaser, but also removing the threat of the largest purchaser,..

Going to be very interesting to see how the BOE reacts in the coming months, as any suggestion of walking away from the QE table is going to likely push up rates and stem recovery,..

Good luck chaps,.. Couldn’t happen to a nicer crew,..
Best aye,..
Rich (Live from ‘The Scarborough Bullion Desk’)




Capital One came out with earnings and it beat the street and the stock rose.  However their earnings were phony:

Capital One's Earnings Fantasy

Capitol One SHOULD HAVE reported at net LOSS of $120 million.

Capital One's stock spike higher yesterday afternoon after the Company released earnings which were better than expected. They reported net income of $220 million, not including charges related to paying back TARP. Technically the market should care about those charges but I'll let that one slip by.MORE important, COF created their net income out of thin air by reducing their provision for loan losses. They reduced this accounting charge by $345 million from the amount they used the 1st quarter,DESPITE the fact that their total charge off rate spiked up to 9.3% in the 2nd quarter from 7.3% in the 1st quarter and from 6.07% in the 2nd quarter of 2008. If they had just held their provision for losses flat, they would have reported at net loss of $120 million (they will tell your their managed assets declined, HOWEVER, their charge-off rates more than offset this and their NET assets were basically flat, so strike that b.s. from the record).

The charge-off trend is not COF's friend. If anything, they should have INCREASED the amount they "provision" for loan losses, rather than decrease that amount, especially since they "provision" rate is about 1/2 of the actual charge-off rate. IN FACT, investors should penalize COF for not being a lot more conservative in this area of accounting. They even said in their conference call that they expect higher charge-offs in the future, so why do analysts let them get away with this crap?

In their explanation, Capital One wraps a loosely spun story around their reduction in loan loss provision for Q2. Don't believe it. If anything, analysts should be all over that - but they won't be. In another troubling trend, the default rates across all of their lending at their Chevy Chase bank subsidiary have spiked higher again. Another no-friend trend for COF. These business lines include commericial real estate, auto loans and home mortgages. And everyone knows that the charge-offs in credit cards are accelerating higher.

I would imagine that if I took the time to pour over the 10Q when they file it, I would find that is in much worse financial condition than is presented in their fictitious quarterly earnings report and I could decimate their "higher" Tangible Common Equity calculation, which they proudly strutted to analysts and I'm sure is based on more fantasy.




Last night, it looks like the FASB board has a change of heart.  They do not like what they are witnessing with the likes of all banks reporting fairy tale earnings:  Please read and reread this:

(it is the biggest story of the day)

FASB Considering Requiring All Financial Assets Be Marked at Fair Values 


This is a huge deal. FASB is considering requiring all financial assets be valued at fair values on balance sheets. Hat tip Andrew. Bloomberg reports(notice my highlighting in bold):

The scope of the FASB’s initiative, which has received almost no attention in the press, is massive. All financial assets would have to be recorded at fair value on the balance sheet each quarter, under the board’s tentative plan.

This would mean an end to asset classifications such as held for investment, held to maturity and held for sale, along with their differing balance-sheet treatments. Most loans, for example, probably would be presented on the balance sheet at cost, with a line item below showing accumulated change in fair value, and then a net fair-value figure below that. For lenders, rule changes could mean faster recognition of loan losses, resulting in lower earnings and book values.

The board said financial instruments on the liabilities side of the balance sheet also would have to be recorded at fair-market values, though there could be exceptions for a company’s own debt or a bank’s customer deposits.

The FASB’s approach is tougher on banks than the path taken by the London-based International Accounting Standards Board, which last week issued a proposal that would let companies continue carrying many financial assets at historical cost, including loans and debt securities. The two boards are scheduled to meet tomorrow in London to discuss their contrasting plans.

Differing Treatment

While balance sheets might be simplified, income statements would acquire new complexities. Some gains and losses would count in net income. These would include changes in the values of all equity securities and almost all derivatives. Interest payments, dividends and credit losses would go in net, too, as would realized gains and losses. So would fluctuations in all debt instruments with derivatives embedded in their structures.

Other items, including fair-value fluctuations on certain loans and debt securities, would get steered to a section called comprehensive income, which would appear for the first time on the face of the income statement, below net income. Comprehensive income now appears on a company’s equity statement.

Expect the financial services industry to fight this tooth and nail.


I think you will enjoy with next commentary.  Bill Holter discusses ONE Trillion dollars.

Quick, if I give you one million dollars per day, how long would it take you to spend 1 trillion dollars.

(the answer if 2750 years).  enjoy the commentary:

To all; $203 Billion! This is the amount the Treasury plans to borrow next week. So what's the big deal you ask? Well, let me try to put this in perspective for you with some back of the envelope math. If the Treasury were borrowing $203 Billion each month they would end the year with a debt balance over $2.4 Trillion. If they were to make this drug habit a weekly event the total would come to about $10.5 Trillion in a years time. No big deal since the Wall Street/Washington crew has already "numbed" (dumbed) the masses down to such large numbers, right?

What is a trillion Dollars? OK here is the good part that most of us poor working slobs can relate to by using a number that is within our grasp of understanding. If you were to spend $1 Million every single day then how long would it take to spend $1 Trillion? In a year you would spend $365 Million, 10 years would be $3.65 Billion, 100 years $36.5 Billion, 1,000 years you would only have spent $365 Billion! Following the math through, you would need to spend $1 Million every single day for roughly 2,750 years to finally reach the paltry figure of $1 Trillion. Paltry I say? Yes, paltry!

Politicians and fat Wall Street hogs (you've been watching them feed from the government trough for more than a year now) have thrown the word "trillion" around like cheap $10 hookers until there was no longer any shock value to a number that has 12 (YES TWELVE) zeros following it! The government has so far lent, borrowed, and guaranteed more than $10 Trillion (notice we've already added another one of those pesky 0's) in just the past 12 months alone. There are estimates out there stating that the "derivatives/debt mess" (this is family oriented so I can't describe this the way I'd like to) will end up costing somewhere north of $20 Trillion (holy cow, now we've added a pesky zero AND then doubled it)!

So going back to the math we can figure out how many years it will take spending $1 Million per day (a number we can grasp) and finally reach $20 Trillion. Drum roll please...MORE THAN 50,000 YEARS! OK, so I can grasp $1 Million per day (in my dreams), but 50,000 years? Will the Earth be around then? What was going on 50,000 years ago? I'm no anthropologist but I'm pretty sure that no human was sitting around and watching CNBC while his common law spouse (there weren't any ministers to perform marriages back then) picked ticks off his hairy back. I mean no offense to women here by implying servitude because if my wife had a hairy back I would have gladly de-ticked her too, but I digress!

Seriously, the point of this nonsense is to point out just that, we are being fed NONSENSE. The word "trillion" has been used so often over the last couple of years that it has become ho-hum. But here is the problem, these goat roping thieves didn't stop at the word "trillion", they've already tossed so many "trillions" around that they've already reached the dreaded QUADRILLION!. Stay tuned, maybe next week when I get another one of those "wild hairs" across my backside, I'll try to define "quadrillion". Actually I'll save you the suspense, it's only 3 more zeroes, what harm could three little zeroes do?

Now you should have a better understanding as to why putting any "Dollar" price on an ounce of Gold is a futile attempt because they keep on adding those annoying "0's". The only thing I really got out of this diatribe is that I should have bought more Gold and it would have been better if I hadn't fallen asleep in Anthropology class. Have a nice weekend, Bill H.




Here is another story that will shock you:  (people are waiting for months once approved to get benefits after they have been laid off)


(from the Nelson Rockefeller Institute )



State Tax Revenues Across U.S. Experience Largest Decline on Record, New Rockefeller Institute Report Shows

Full First-Quarter 2009 Report on All 50 States Reveals Sharpest Revenue Drop in the 46 Years for Which Quarterly Data Are Available

Albany, N.Y. — Taxes collected by the 50 states dropped by 11.7 percent overall during the first quarter of 2009, compared to the same period a year earlier – the largest such decline in the 46 years for which quarterly data are available, according to the latest report on state finances from the Rockefeller Institute of Government.

Overall state tax revenues fell to the lowest first-quarter level since 2005, according to the Institute. The decline in personal income tax was particularly sharp, with an unprecedented decline of 17.5 percent, as the weakened economy continued to hammer state budgets. Forty-five of the 50 states experienced revenue drop-offs.

All regions of the country saw declines in total state tax collections, with the Far West seeing the largest decline at 16 percent. Only the Rocky Mountain and Plains regions saw single-digit declines at 5 percent and 6 percent, respectively.

Early look at 2nd quarter shows trend worsening

Early figures for April and May of 2009 show an overall decline of nearly 20 percent for total taxes, a further dramatic worsening of fiscal conditions nationwide. Preliminary figures for the state fiscal year 2009 indicate around 8 percent decline in total taxes, 13 percent in personal income taxes, and 5 percent in sales taxes.

Authors of the report – Institute Senior Fellow Donald J. Boyd and Senior Policy Analyst Lucy Dadayan – noted that local tax collections fared better than state taxes, with overall growth of 3.9 percent in the first quarter.

The Institute report regularly examines the three major sources of revenues for states: personal income taxes, sales taxes and corporate income taxes. During the first quarter of 2009, personal income taxes fell 17.5 percent. Sales tax collections were down 8.3 percent and corporate income taxes fell 18.8 percent.

“Such extraordinary weakness in revenues, along with continued if more moderate growth in expenditures, make widespread budget shortfalls highly likely this year,” Boyd and Dadayan wrote in the report.

For a full copy of the report, visit

The Institute’s Fiscal Studies Program, originally called the Center for the Study of the States, was established in May 1990, in response to the growing importance of state governments in the American federal system. Despite the ever-growing role of the states, there is a dearth of high-quality, practical, independent research about state and local programs and finances.



Here is another article hypothesizing the market cracking up.  It also believes the market is not analyzing the situation at CIT properly:

U.S. Economy: Another Crack Opening Up? 1 comment

July 24, 2009 | about: CIT    

You see plenty of reports nowadays suggesting that financial Armageddon has been avoided. Meanwhile, "experts" in Washington and on Wall Street congratulate each other on their apparent success in preventing the crisis flood waters from breaching the financial system's levee walls.

In reality, all they've really done is plugged some of the initial gaps with funny money-filled sandbags -- just as a raft of other holes are beginning to open up. That's the thing about bursting credit bubbles: every time you think you've turned back the tide, more red ink suddenly starts flowing through the cracks.

What's more, these bubbling breaches aren't necessarily seen by those in charge as the spearheads of deadly surges to come. In many respects, in fact, that describes the miscalculation that occurred with Lehman Brothers.

Now, according to Dow Jones Newswires columnists Donna Childs and Sameer Bhatia, writing in CIT Poses Lehman-Like Risk," we may be poised to see it happen once again.

The implications of the capital crisis of CIT Group Inc. (CIT) fill 24-hour news coverage and yet credit default swaps are near record lows and the markets appear calm, a peculiar disconnect given the events that followed Lehman Brothers' bankruptcy. What gives?

The century-old lender narrowly avoided a bankruptcy filing this week when it obtained $3 billion in loan commitments from its bondholders. Tuesday, documents filed with the Securities and Exchange Commission laid out steps that it will take to avoid bankruptcy, though it warned that any misstep likely would lead to a Chapter 11 filing. Who has correctly gauged the risk CIT poses to institutions, markets and the economy - the media, the markets or the government?

The market judged Lehman a serious matter. In the days preceding Lehman's bankruptcy, credit default spreads spiked. The Markit iTraxx Europe Senior Financials Credit Default Swap Index spread rose from 94 on Sept. 12 last year to 147 three days later, the date Lehman filed bankruptcy. The index spread peaked on March 6 this year, reaching 199, but it has since retreated to 114.

It appears anomalous that CDS spreads are near historic lows, despite a possible imminent collapse of an important commercial lender. So why haven't spreads moved significantly despite the media's scrutiny of CIT's crisis?




And finally an article whereby China is pulling away from USA debt instruments.  No question that the author is correct:


China Pulling Away from American Debt? 6 comments

July 24, 2009    

y Kindred Winecoff

The Chinese say that they will be diversifying away from T-Bills:

This is reserve diversification in a broader sense. Instead of accumulating foreign exchange reserves and short-term financial assets, the government wants the nation to accumulate more long-term corporate real assets.”

State-owned groups, particularly in the oil and natural resources sectors, have stepped up their hunt for overseas companies and assets on sale because of the global crisis.

Of course if China stops buying T-bills it will put downward pressure on the dollar, make the servicing of our deficits more costly, and making our imports more expensive (thus making us poorer). So if the Chinese are truly diversifying away from the dollar, or away from government debt, then it could spell trouble. This is the "Great Adjustment" that economists like Nouriel Roubini have been warning about for years. This was how Chimerica was supposed to fall apart. 

But the Chinese have been making these sorts of threats for years without following through, and I've learned over the years to never form an opinion on Chinese sturm und drang without consulting Brad Setser first. He says:

For a while in 2007 and 2008 the growth in China’s US holdings lagged its reserves. Chalk that up to diversification. The gap between China’s known US assets and its reserve growth came at a time when China was buying more “risky” US assets, like equities — and likely increasing its exposure to a host of potentially “risky” emerging economies. Or chalk it up to increased use of private fund managers, including the money market funds used by the CIC. China’s dollar holdings likely increased a bit more rapidly than the US data implies.

Then for a brief period last fall China’s “safe” US holdings rose far faster than its reserves. That likely reflects a shift out of riskier assets – and a shift away from privately managed funds — back towards classic reserve assets. I don’t know precisely what drove the surge in recorded inflows to the US. But something changed. After a period when inflows to the US lagged, they suddenly surged — with almost all the inflow going toward short-term bills

And now China’s US holdings – particularly its Treasury holdings – seem to be rising in line with China’s reserves.

China is still buying other assets. Chinese state firms have been actively bidding for mineral rights – and companies that have mineral rights. And China has been stockpiling commodities. But over the last few months SAFE has essentially been buying Treasuries at – best I can tell – more or less the rate implied by China’s reserve growth.

Setser has charts and graphs to prove it, if that's your thing. The gist seems to be that China is diversifying, but their reserves are so large (over $2tn, and growing rapidly) that they are still buying T-Bills as well. Remember, the China Investment Corporation got burned badly when the equity markets tanked last fall, and the Chinese government has demonstrated strong risk-aversion time and time again. So while they do continue to diversify, their holdings of T-bills will continue to grow as long as their foreign reserves keep growing. 

Emmanuel at IPEzone offers further comment.

I wish everyone a grand weekend.  I will see you on Monday.

Thursday, July 23, 2009

July 23.09 commentary.

Good evening Ladies and Gentlemen:
After the bell, we got lousy results from Microsoft, Amazon, and American Express which should cause the stock market to fall from its lofty heights.
The stock market rose by 188 points to 9069.00  The Dow is way ahead of itself with respect to earnings.
If earnings do not materialize, the markets will surely tank.
Gold closed up by 1.20 to 954.50.  Silver rose by 9 cents to 13.78.  The gold comex OI rose another 3000 contracts to 395000.  Silver's OI continues to contract, falling to 96000 as the cartel made sure that no speculators are playing.
Dennis Gartman wrote this morning that if Gold rose to 955 he was buying another unit.  The cartel let gold advance to that level and now  Dennis is in again.
In the access market, gold fell to 948.00 which is a clear indication that they are going to attack tomorrow.
The earnings disappointment of American Express which is a bellweather to the health of the economy surely will disappoint the bulls.  Tomorrow will probably be a rough day for gold and silver.
Today, we saw tremendous weakness in the dollar.  Only huge intervention by the monetary authorities prevented the dollar index from penetrating 78.50.  The dollar closed at 78.78.  The bonds tanked today with the 10 year yield at 3.76%.  The long bond fell almost 1 and 1/2 points to 116.04.  Here are some numbers for today:
The yield on the 10 yr T note rose to 3.7%.

The dollar dropped a slight .03 to 79.78. The pound was a little firmer, but the yen put in a solid gain, up 1.423 to 95.

Crude oil gained $1.76 per barrel to $67.16.

The CRB went up 4.46 to 251.33.



I find this next number fascinating:


MarketVane's Bullish Consensus added a point to 80%; the HGNSI was unchanged at 23.5%. The GLD ETF shed 5.8 tonnes to report 1,086.61 tonnes. 




This is strange because gold is rising and the GLD is shedding gold???


It was reported that many hedge funds have been cashing in their GLD and it looks like they are taking the metals which should put tremendous pressure on GLD and SLV. Here are some of those who followed Greenlight:

This is the first time I've seen the GLD holdings decline while the price of gold is rising.

Ever since the Greenlight Fund said they were swapping from paper gold to 'real' physical gold there's been a steady sell off in GLD holdings.

According to TickerSpy, since Greenlight announced their change the following funds have sold out of GLD:

Augustine Asset Management - 1.9m

Churchill Management Group - 0.4m

CI Investments - 424.7m

Manley Asset Management - 1.1m

Pate Capital Partners - 4.54m

TD Securities - 2.0m

United Financial - 7.1m


Stephen Roach put this comment to Wall Street as the Dow surpassed the 9000 mark:

Stephen Roach of Morgan Stanley "sorry to break the news, but the financial crisis is not over...plenty of more write-offs of bad paper still to come...the American consumer is dead in the water..."
Refreshing to see the Vice Chairman of a corrupt Wall Street firm speak truthfully about what is really going on.

Something to think about the next time you hear the dopes on CNBC or the dope in charge of the Federal Reserve say that there are signs the economy is improving.






The jobless number was released at 8 30 this morning.  The labour market is still in distress!!

U.S. jobless claims rise 30,000 in latest week 

WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless benefits rose roughly as expected last week, but the data was distorted by an unusual pattern of layoffs in the automotive industry. 

Initial claims for state unemployment insurance rose by 30,000 to a seasonally adjusted 554,000 in the week ended July 18, the Labor Department said on Thursday. Analysts polled by Reuters had expected claims to increase to 550,000 from a previously reported 522,000.-END-

Unadjusted Year Over Year: Labor Department Initial Jobless Claims Up 41%

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

  • Associated Press Headline And Lead: "New jobless claims rise to 554K, total rolls fall... The number of newly laid-off workers seeking jobless benefits rose last week, though the government said its report again was distorted by the timing of auto plant shutdowns."Labor Department News Release: click here.Key Numbers: "The advance number of actual initial claims under state programs, unadjusted, totaled 580,944 in the week ending July 18, a decrease of 90,298 from the previous week. There were 411,408 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 - Yes, there is a lot of seasonality here. This week unadjusted numbers looked much more bullish (week over week) than the seasonally adjusted numbers. So seasonal adjustment is not entirely "rigging" the numbers. Still things are bad year over year and well above my target 400,000 number for signaling the bottom of the economic downturn.Here's a chart of the initial jobless claims since I started gathering them. The diamond dark blue line is the one that I think is key and having it fall to 400,000 would point to a bottoming of the downturn. 




Home Sales rose by 3.4% but mainly foreclosure sales:


U.S. existing home sales rise 3.6 percent in June 

WASHINGTON, July 23 (Reuters) - Sales of previously owned homes in the United States increased at a faster-than-expected annual pace in June, an industry survey showed on Thursday, in the third straight month of gains. 

The National Association of Realtors said that sales rose 3.6 percent to an annual rate of 4.89 million units from a downwardly revised 4.72 million pace in May. June's reading compared with forecasts for a 4.84 million unit annual pace.




Commercial paper continues to contract.  If the economy was booming, commercial paper would expand greatly:

US commercial paper outstanding slips in week -Fed 

NEW YORK, July 23 (Reuters) - The U.S. commercial paper market contracted in the latest week, eroded by the long-lasting economic downturn and effects of the global credit crisis, Federal Reserve data showed on Thursday.

For the week ended July 22, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, fell by $3.3 billion to $1.093 trillion outstanding, from $1.097 trillion the previous week.

That's the smallest since at least early 2001, when the U.S. central bank started compiling the data in its current form. The overall U.S. commercial paper market has halved since peaking at about $2.2 trillion outstanding in August 2007 when the credit crisis broke out.



The big news of the day came with the announcement of future bond and bill auctions for next week.

The total new auctions will total over 230 billion dollars.  This figure is astounding!!


U.S. to conduct record long-dated Treasury sales

NEW YORK, July 23 (Reuters) - The U.S. government is set to sell record amounts of long-dated Treasury securities next week in an effort to raise billions to fund its economic stimulus package and industry bailouts. 

On Thursday, the Treasury Department said it will sell a combined $115 billion in longer-maturity regular and Treasury Inflation Protected Securities (TIPS), surpassing the weekly record of $104 billion set in June. [ID:nWEQ001238] 

The auctions of these securities will raise about $93 billion in new money for the government, analysts said. 

The Treasury Department will also auction at least $90 billion in bills next week.



This is what someone commented on hearing of this auction:

With $230 billion of Bills and Notes to be sold over the next week will we see the DOW suddenly crater from these unsustainable levels with a stampede into treasuries as the only safe haven? Looks like Gold is to be targeted too. They allowed this run up in Shares and Gold to sucker people in and will now try to crash them both while getting their friends overseas to bid up the Dollar. That I am sure is the plan as it was earlier this month when they had to sell debt. Will they succeed this time? That is the question.


Things are heating up over in England with tension flaring between banks and the Bank of England:

"To state the obvious, there isn't a great sense of common cause or national purpose between the banks on the one hand and the government and Bank of England on the other on how to revive the economy.

There remains tension in the relationship, reflecting the banks' need to return to what they see as a sustainable level of profits and the authorities' fears that any recovery - as and when it comes - could be choked off either by the inadequate provision of credit or by the excessive cost of borrowing."


Basically tax revenues are falling short and expenditures are rising.

Also this:

In the case of the UK, the Bank of England has nearly exhausted its first £125 billion of QE funds. To create more will be a clear signal that things are not working and should in a sensible world send the pound well down and put up the yield on long-term gilts.


Commercial real estate is faltering:

Commercial real estate prices in freefall 
Boston Business Journal - by Katherine Conrad San Jose Business Journal 
Thursday, July 23, 2009, 9:14am EDT

Commercial real estate values around the country have dropped 35 percent from their peak in October 2007, according to Moody's REAL Commercial Property Price Indices.

The decline appears to be accelerating as the index dropped more than 15 percent during April and May. Transactional volume also fell along with value, which is showing signs of effects from distressed sales.

"May marked a new low for both counts," the report said.

Along the lines of kicking a sector when it's down, a rise in interest rates caused several deals to unravel, hitting apartment sales the hardest.

To calculate the index, Moody's used 52 repeat sales, which had a dollar value of $400 million in April 2002.

Dan Fasulo, managing director of Real Capital Analytics, said Moody's report is beginning to reflect true market pricing conditions "well ahead of any other indicators" and noted that commercial property values have fallen more than residential prices in annual terms.

David Geltner, who led the team that developed Moody's indices, said May's figures have dropped 22 percent from the same month a year ago.

"This makes the second month in a row of near-record losses in the same-property transaction prices of U.S. commercial real estate tracked by Real Capital Analytics," he said.

Geltner described himself as "bravely looking for the bottom" and wrote in a a column that accompanied the report: "Almost every month this year as I've written this commentary for REAL I've speculated on how far the CPPI will fall in order to complete the current downturn. And I keep getting surprised for the worst."

The West, according to Moody's, which rated sectors and regions around the country, fared slightly better than the rest of the nation. Apartments in the West fell 14 percent from a year ago; industrial property fell 7 percent; office fell almost 18 percent and retail dropped 7 percent.

Nationally, those figures showed that the West fared slightly better than the rest of the nation.

Nationally, the index measuring apartments fell 16 percent compared to a year ago; industrial property fell 12 percent; office dropped almost 29 percent and retail fell 18.5 percent.

Geltner said May's drop should be put the country near the bottom.

"The worst is clearly over in terms of the transaction price drop," he wrote. "Of course, arrival at a solid bottom does not guarantee that the market won't 'fall through' into a negative bubble'. But that seems unlikely given the amount of capital poised on the sidelines of the property market, at least provided that the real economy doesn't take another nose-dive."


Katherine Conrad can be reached at 408.299.1820 or



Finally, here is a great article on the problems at CIT:

CIT on the Verge


A funny thing happened last week. After the government refused a second bailout for the CIT Group — the ailing lender to small and midsize businesses — CIT's bondholders realized how much they could lose if the firm filed for bankruptcy and agreed to provide $3 billion in emergency financing. The agreement, finalized Monday night, averted what would have been the fifth-largest bankruptcy filing in the history of corporate America.


Times Topics: CIT Group Inc.

Readers' Comments

Readers shared their thoughts on this article.

The reprieve is likely only temporary. CIT needs $7 billion just to pay debt that is coming due over the next year. Even if it comes up with the money, the firm's longer-term viability is still in doubt. That's because the bondholders currently propping up CIT are apparently counting on regulators to provide more government support in the future. That's far from assured.

The government's decision not to offer a second bailout to CIT is defensible. The lender had not satisfactorily restructured its operations since receiving a $2.3 billion bailout late last year. Since then, financial markets have calmed down, building confidence among regulators that the system is strong enough to withstand at least CIT-sized problems.

While CIT may be too small to rescue, its problems hold big lessons for the Obama administration on how to manage through the ongoing recession and how to judge the system that is emerging from the wreckage.

For starters, forcing CIT to fend for itself does not mean that its business customers should be cut adrift. In today's tight credit markets, many small businesses cannot simply switch lenders at will. In a CIT bankruptcy filing, retailers could be especially clobbered, since the firm provides short-term financing to some 2,000 vendors that supply hundreds of thousands of stores. And yet, last week, when the government refused to rescue CIT, it had no apparent plan to make sure those businesses would continue to have access to the financing needed to stay in business.

Clearly, the administration must do more to ensure that lender difficulties do not undermine small businesses. The Treasury Department must ramp up a stalled $15 billion initiative to buy up small business loans so that lenders have more money to re-lend. The program was announced in March but is not expected to be up and running until the end of this month. A separate $730 million program that allows the Small Business Administration to guarantee most small-business bank loans should be reassessed to see if it is big enough.

The Obama administration must also pay close attention to how the broader financial system responds to CIT's difficulties. As CIT restructures, whole swaths of its operations could be sold to competitors. The knee-jerk reaction would be to hail that outcome as evidence that the markets are working to efficiently deploy resources.

But if much or most of the business ends up at the few big banks that are still standing (thanks in no small part to federal efforts to rescue the financial system), the result would be that too-big-to-fail institutions get even bigger. That implies, in turn diminished competition, higher banking costs for businesses and increased systemwide risk. That would be the opposite of what's needed to rebuild a healthy economy.

Ok got to go now.  Expect the markets to tank tomorrow.  Gold will be under pressure.  This will help revive the weak dollar and help the bonds.


see you on Saturday.







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