The silver COT showed…
*The large specs increased longs by 2,253 contracts and reduced shorts by 270.
*The commercials increased longs by 89 contracts and increased shorts by 3,244.
*The small specs increased longs by 80 contracts and reduced shorts by 552.
end.
Note that the commercials have vacated the arena. However not so for gold:
*The large specs increased their longs by a sizeable 17,557 contracts and reduced shorts by 3,186.
*The commercials reduced longs by 9,217 and increased short contracts by 16,455.
*The small specs increased longs by 3,720 contracts and reduced shorts by 1,209 contracts.
end.
Here are some numbers that I will touch on today:
The yield on the 10 yr T note is 3.85%.
The dollar rose 1.01 to 78.94. The euro fell .0199 to 1.4171. The pound lost .0126 to 1.6679 and the yen fell 1.99 to 97.47.
Crude oil dropped $1.01 per barrel to $70.93.
The CRB lost .42 to 264.35.
The big news of course was the jobs number. The usa announced better than forcast lost jobs and the stock market rallied 113 points on the news:
U.S. economy sheds fewer jobs than expected
WASHINGTON (Reuters) - U.S. employers cut 247,000 jobs in July, far less than expected and the least in any month since last August, according to a government report on Friday that provided the clearest evidence yet that the economy was turning around.
With fewer workers being laid off, the unemployment rate eased to 9.4 percent in July from 9.5 percent the prior month, the Labor Department said, the first time the jobless rate had fallen since April 2008.
The government revised job losses for May and June to show 43,000 fewer jobs lost than previously reported.
Analysts had expected non-farm payrolls to drop 320,000 in July and the unemployment rate to rise to 9.6 percent. The forecast was made earlier this week before other jobs data prompted some economists to lower their estimates for job losses.
Since the start of the recession in December 2007, the economy has shed 6.7 million jobs, the department said.
Job losses in July were spread across all sectors, but the pace of firings slowed markedly from previous months.
Manufacturing employment fell by 52,000 -- the first time since September losses were less than 100,000 -- after shrinking by 131,000 in June. This was probably due to the reopening of General Motors and Chrysler assembly plants after bankruptcy closures.
Payrolls in construction industries slipped 76,000 after falling 86,000, likely reflecting spending on infrastructure projects from the government's $787 billion stimulus package and a modest pickup in ground breaking for new homes.
In the service-providing sector, 119,000 workers were laid off, and the goods-producing industries purged 128,000 positions.
Education and health services continued to add jobs, with payrolls increasing 17,000 in July after rising 37,000 in June. Government employment increased 7,000 after slipping 48,000 in June.
-END-
The report saw huge gains in employment in government but lost a huge number in the private sector.
This is not how to build an economy out of the ashes of dispair. How can you lose jobs and the unemployment rate falls. I guess many discouraged workers left the arena!
As many of you know, there are two numbers that I watch closely to indicate the health of the economy.
1. The Baltic Dry Index
2. The TIC report.
The Baltic Dry index is a number which reflects the cargo rate for moving commodities around the world. It does not include oil.
If the index is dropping it means that commodities are not moving and since China is the driver of commodities, it means that their economy is overheating. This is one statistic that the usa does not want to see. Here is the story on it:
FRIDAY, AUGUST 7, 2009
The Truth About Those Supposed Green Shoots
But I wanted to bring your attention to the 33% decline in the Baltic Dry Index since its recent peak in early June. The Baltic Dry Index is considered a very accurate barometer of actual global economic activity, as it measures globally the shipment of commodities - base materials used in economic production:
As you can see, this index of economic activity had a huge move higher when China starting buying beaten down commodities hand-over-fist this past spring. As per the linked Bloomberg article, China has slowed down their commodity purchases and this index is heading south again:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOkYkh3CsUFg
Given that the private sector and manufacturing base in the U.S. continues to shed jobs, it is clear that economic activity in the U.S., or lack thereof, has had no bearing on the rise in Baltic Dry Index and is probably dragging it lower. In fact, Cisco reported earlier this week that their next quarter's sales will be down at least 15-20%. Cisco's revenue stream has always been considered a benchmark barometer of economic activity in this country.
So the next time you hear someone mention "green shoots," take a look at the more accurate "grass roots" indicators, like the BDI above, or what companies like Cisco are actually reporting. Those tend to provide a lot more substance than the hot air marketed on CNBC and Wall Street.
As an aside, I would like point out that China's slowdown in commodities purchases does not include gold. We know this because China has indicated to the IMF that not only would they like to buy the 403 tons of gold the IMF wants to sell, but China would actually like buy ALL of the IMF's 3200 tons of gold:
http://www.mydigitalfc.com/news/india-and-china-want-imf-sell-its-100b-gold-897
Gold is going to go much higher this year, especially as the truth about what's really happening in the U.S. economy is translated into the stock market, which is now more overvalued on a p/e basis than the Nasdaq was at the height of the tech bubble.
Regarding today's Government enhanced job loss report, this commentary posted at www.zerohedge.com explains truth behind the hype and backs it up with data:
http://www.zerohedge.com/article/truth-behind-todays-bls-report
Dave also writes that Cisco has warned that they see reduced demand for their product over the next few quarters:
Given that the private sector and manufacturing base in the U.S. continues to shed jobs, it is clear that economic activity in the U.S., or lack thereof, has had no bearing on the rise in Baltic Dry Index and is probably dragging it lower. In fact, Cisco reported earlier this week that their next quarter's sales will be down at least 15-20%. Cisco's revenue stream has always been considered a benchmark barometer of economic activity in this country.
So the next time you hear someone mention "green shoots," take a look at the more accurate "grass roots" indicators, like the BDI above, or what companies like Cisco are actually reporting. Those tend to provide a lot more substance than the hot air marketed on CNBC and Wall Street.
end.
The next big news came from the release of "earnings" from Fannie Mae. This company reported its 8th straight quarterly loss of 14.8 billion dollars and the government needs to fork over 11 billion dollars.
They still have massive derivative losses on their books. They announced that they see no end to their continual losses in the future:
Fannie Mae to Tap $10.7 Billion in Treasury Capital (Update1)
By Dawn Kopecki
Aug. 6 (Bloomberg) -- Fannie Mae, the mortgage-finance company taken over by the government, asked the U.S. Treasury for a $10.7 billion capital investment as an eighth straight quarterly loss drove its net worth below zero once again.
A second-quarter net loss of $14.8 billion, or $2.67 a share, pushed the company to request money for the third time from a $200 billion government lifeline, Washington-based Fannie Mae said in a filing today with the Securities and Exchange Commission.
Today’s results bring the company’s cumulative losses over the last two years to $101.6 billion and will bring its total draw on the Treasury to $44.9 billion since April.
The credit quality of loans and mortgage bonds that Fannie Mae owns or guarantees have deteriorated as a recession that began in December 2007 pushed more homeowners into foreclosure. A record 1.5 million U.S. properties received a default or auction notice or were seized in the first half of this year, 15 percent more than a year earlier, as employers cut jobs and temporary programs to assist homeowners came to an end, RealtyTrac Inc. said July 16.
Fannie Mae said it expects the quality of its assets to worsen further and to continue accumulating losses as it executes President Barack Obama’s efforts to modify or refinance loans for as many as nine million homeowners.
“We do not expect to operate profitably in the foreseeable future,” the company said in its filing. “We expect that we will experience adverse financial effects as we seek to fulfill our mission by concentrating our efforts on keeping people in their homes and preventing foreclosures.”
Fannie Mae and smaller competitor Freddie Mac, which own or guarantee almost half of U.S. residential mortgage debt, are integral to Obama’s plan to help homeowners. In February, the government doubled its emergency capital commitment for each company from $100 billion, which the Treasury makes through preferred stock purchases.
$50.7 Billion in Aid
McLean, Virginia-based Freddie Mac has tapped $50.7 billion in aid in since November as the value of its assets dropped below the amount it owed on obligations. The companies’ regulator, James Lockhart, said yesterday that he is stepping down to pursue opportunities in business. His departure comes as debate grows over the future of the mortgage-finance companies once they emerge from the housing crisis.
Fannie Mae’s net worth, or the difference between assets and liabilities, was negative $10.6 billion as of March 31, compared with negative $18.9 billion on March 31 and negative $15.2 billion on Dec. 31, according to company statements.
Fannie Mae and Freddie Mac are the largest U.S. mortgage- finance companies, owning or guaranteeing about $5.4 trillion of the $12 trillion residential mortgage debt.
The Federal Housing Finance Agency put the companies under its control Sept. 6 and forced out management after examiners said the two might be at risk of failing amid the worst housing slump since the Great Depression.
Increased Reserves
The company increased reserves for future credit losses to $55.1 billion last quarter from $41.7 billion in the previous quarter.
The amount of nonperforming loans that Fannie Mae guarantees for other investors rose to $144.2 billion from $121.4 billion in the first quarter, according to the filing. Fannie Mae also owned $26.3 billion in non-performing loans as of June 30, up from $23.2 billion in the first quarter.
The fair value of Fannie Mae’s assets was negative $102 billion last quarter, compared with $110.3 billion at the end of March.
Fannie Mae and Freddie Mac shares, which were above $30 in March of last year, have been trading at less than $1 since December, except for one day in March when Freddie closed at $1.01. Fannie Mae closed at 79 cents today on the New York Stock Exchange, and Freddie Mac finished the day at 84 cents.
Fannie Mae was created in the 1930s under President Franklin D. Roosevelt’s “New Deal” plan to revive the economy. Freddie Mac was started in 1970.
The companies were designed primarily to lower the cost of home ownership by buying mortgages from lenders, freeing up cash at banks to make more loans. They make money by financing mortgage-asset purchases with low-cost debt and on guarantees of home-loan securities they create out of loans from lenders.
To contact the reporter on this story: Dawn Kopecki in Washington atdkopecki@bloomberg.net.
end.
The next story is a dandy but I will preface it with a little background.
The auctions for bonds are bid for by 17 primary dealers. In the past few weeks, 3 new primary dealers were accepted into the fold:
1.Toronto Dominion Bank
2. Royal Bank of Canada
3.Nomura Securities of Japan.
They joined the previous 14 dealers. These dealers must bid for the bonds at an agreed price.
Also recall that at the end of the auction, they reveal what is known as the bid to cover ratio.
Thus we must always have a minimum of 1:1.
The dealers then can resell bonds to institutions seeking bonds at a higher mark up.
Private pension funds and Bond dealers like PIMCO can also bid for the bonds. The primary dealers and the latter funds thus make up the direct bid for the bonds.
The indirect bid is foreign central banks that bid for the bonds and hold these bonds at the Fed.
You may have foreign non government entities bid for the bonds say, the oil interests etc. They too keep the bonds stored at the Fed.
So if you see 36% of direct bid and 67% indirect bid you know that only 36% of the bonds were bought by usa interests and the remainder by foreign central banks or other foreign entities.
I pointed out to you last week that 230 billion dollars worth of bonds were offered. The first two auctions when poorly with the 5 yr auction going at bid to cover ratio of 1:90 and 63% indirect participation.
The markets tanked on the news as it means that the dealers were gorging themselves on the bonds as they could not get the minium of 2: 1 to relieve themselves of bonds.
Then came the 7 yr auction and news surfaced that the auction when extremely well to everyone's surprise. Nowthe story surfaces that of the 36% direct bid, 48% of that bid by the 17 dealers recycled the bonds back to the Fed,
We also know that the indirect bid is the usa dollar swaps sitting on foreign soil which is purchasing the bonds on behalf of the Fed.
Ladies and Gentlemen: the Fed bought most of the 7 yr auction. And China will not be a happer camper when this gets out!!
Here is the story:
Thursday, August 6, 2009
The Fed Directly Monetizes 17% of Last Week's 7-yr Treasury Auction
The Fed conducted a Permanent Open Market Operation today (POMO), in which it purchased from Wall Street firms $4.753 Billion of the of the $28 Billion 7-yr Treasuries auctioned last Thursday. A Fed POMO is an operation in which the Fed directly buys Treasuries from bond brokers as a means of permanently injecting money into the banking system. The Fed holds these bonds permanently on its balance sheet.
Chris Martenson sniffed this out today at http://www.chrismartenson.com/blog/fed-buys-last-weeks-treasury-auction/23880 where he shows the details copied from the Fed's website and from the details of the auction released by the Treasury. As you can see, the Fed today bought $4.753 Billion of the exact bond cusip from last weeks Treasury auction (the cusip number is a specific number assigned to any registered stock or bond security for identification purposes)….
http://truthingold.blogspot.com/2009/08/fed-directly-monetizes-17-of-last-weeks.html
The ECB have finally announced their next Washington agreement and they have lowered the cap from 500 tonnes per year to 400 tonnes per year.
Two aspects in the agreement are clear:
1.they have included the 403 tonnes of IMF gold
2.Switzerland has stated no interest in selling any gold for the forseeable future.
All signatories believe that the quota will not be met as they seem not interested in parting with any of their gold.
European central banks: Annual gold sales capped at 400 tons
Posted on : 2009-08-07 | Author : DPA
News Category : Business
Geneva - European central banks have extended a cap on gold sales for another five years but changed the ceiling to 400 tons per year, a joint statement announced. The previous agreement, which allowed for 100 more tons a year, was set to end on September 27. The new one would be reviewed in five-years time.
In all, 19 central banks, including the European Central Bank, signed the agreement. The other banks include those of: Belgium, Germany, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Portugal, Slovenia,Slovakia, Malta , the Netherlands, Austria, Finland, Sweden and Switzerland.
The statement also recognized the International Monetary Fund's plan to sell off gold.
"The signatories recognise the intention of the IMF to sell 403 tons of gold and noted that such sales can be accommodated within the above ceiling," the statement said.
The Swiss National Bank said in an accompanying message that it had no plans for any further gold sales in the foreseeable future.
"With gold holdings amounting to 1,040 tons, it holds a substantial part of its currency reserves in the form of gold," the SNB said.
end.
Three new banks were sent to the morgue yesterday bringing the total to 72.
Jim Bunning in an interview with Sheila Bair was told to expect 500 bank failures by the end of the year. Here is the story:
U.S. Bank Failures Rise to 72 With Collapses in Florida, Oregon
By Alison Vekshin and Ari Levy
Aug. 8 (Bloomberg) -- U.S. bank failures rose to 72 this year with the collapse of two lenders in Florida and one in Oregon amid the worst economic slump since the Great Depression.
Regulators shut First State Bank and Community National Bank, both based in Sarasota, Florida, and Community First Bank in Prineville, Oregon, the Federal Deposit Insurance Corp. said in statements yesterday. The FDIC was named receiver. Closing the lenders, with combined assets of $769 million and deposits of $662 million, will cost the deposit insurance fund about $185 million.
Regulators are closing banks at the fastest pace in 17 years as losses mount from unpaid real-estate debt. The FDIC is offering to share losses with potential buyers, reviving a practice used during the U.S. savings-and-loan crisis in the late 1980s.
Stearns Bank of St. Cloud, Minnesota, will assume almost all deposits of the Florida banks, the FDIC said. First State, the biggest of the three failures with $463 million in assets and $387 million in deposits, had nine branches along Florida’s Gulf coast that will open Aug. 10 as Stearns branches, according to the FDIC.
Community National’s four offices will open under the Stearns name, the agency said. Stearns is paying a 0.25 percent premium for Community National’s $93 million in deposits and the FDIC is sharing losses on most of the $545 million assets being acquired from the two failed lenders.
Home Federal Bank in Nampa, Idaho, is buying most of Community First’s $182 million in deposits and 94 percent of its $209 million in assets. The FDIC is sharing losses on $155 million of assets in the deal. The eight branches of Community First will reopen on Aug. 10 as offices of Home Federal.
The FDIC, based in Washington, insures deposits at more than 8,200 institutions with $13.5 trillion in assets and reimburses customers for deposits of up to $250,000 when a bank fails. This year’s failures have cost the insurance fund more than $15 billion.
To contact the reporters on this story: Alison Vekshin in Washington atavekshin@bloomberg.net; Ari Levy in San Francisco atalevy5@bloomberg.net.
Last Updated: August
end.
Many have commented that yesterday we saw a shift in government`s managed expecations on the stock market:
For months we saw the following scenario:
1. Dow up, gold up (the inflation scenario)..bonds would go down in price...dollar would go down as in an inflation scare.
or
2. Dow down, gold down (deflation scenario)..bonds would go up as deflation takes hold...the usa dollar rises.
Yesterday, we entered a new set of managed expectations with the Dow up, the dollar up, gold down and bonds tanking.
The long bond closed yesterday at 115.3 which means that JPMorgan`s 61 trillion dollars of interest rates swaps are starting to bellow in smoke.
I guess Larry Summers is trying to orchestrate some Goldilocks scenario in that the economy is improving but no inflation with all of the 2 trillion dollars of printed dollars and QE surfacing.
There is another bond auction slated for this coming week.
Something is brewing but I just cannot figure out their next move.
Something is also brewing in the silver department. It has shown tremendous resilence the past few days. I guess Gensler has told JPMorgan to remove its huge short in silver.
speak to you on Monday.
Harvey.
