Saturday, August 8, 2009

august 8.09 commentary.

good morning to all:
Gold closed down by 3.70 to 957.50,  Silver however remained in the green at 14.67 up by 7 cents.
The open interest on the gold comex rose another 3200 contracts to 396400 nearing its high of March 08.
The silver OI fell by 500 contracts to 100,000
There is no question that the Banking Cartel are digging in their heals to prevent gold's surge.  Gold has found a determined buyer who waits patiently and buys quantities of gold in London and again at the Comex.
If you review the COT report it is clear that the cartel are surrounded as if General Custard is defending fiat to his last breath.  The Indians seems to have captured silver!!


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.



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.




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.


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:


The Truth About Those Supposed Green Shoots

We have been maintaining all along that what the Government and media refer to as "green shoots" is nothing more than a temporary slowdown in the rate of decline of the economic conditions in the U.S. Today's employment number is a perfect example. The 247,000 jobs lost in July as reported today is being heralded as big a victory for the Obama Administration and another "green shoot" sign of a recovering economy. Notwithstanding that the Goverment employment number is subjected to unbelievable statistical manipulations and future revisions, it was still a quarter of a million jobs lost just in one month AND huge private sector job losses were offset by massive Governent hiring. Not the sign of a healthy economy. 

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:

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:

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 explains truth behind the hype and backs it up with data:

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.


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) 

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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




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 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)….


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.


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 

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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; Ari Levy in San Francisco

Last Updated: August




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.



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.



Thursday, August 6, 2009

August 6.09 commentary.

Good evening Ladies and Gentlemen:
Gold closed down by 3.50.  Silver fell by 12 cents.  The open interest on gold comex rose by only 300 contracts yesterday despite golds advance. Silver's OI continues to advance by 1300 contracts as silver continues its northbound trajectory in price.
Gold was hit in the access market when  all of a sudden out of nowhere this hit the news: (gold rose from negative 7.00 to positive 3.)
Word was circulating on CNBC this morning that there might be some kind of massive revision of job losses the past six months … meaning 500,000 to 1 million additional lost jobs would be added to the prior monthly numbers. That is beyond staggering. But it certainly fits right into place with what has been sent your way this year … that the real US economy is in far worse shape than reported by the establishment. NO surprise to our camp.
If there would be a revision by that number, it would be devastating as it means huge additional costs must be borne by government.
We are now hearing from individuals who never thought that there is manipulation on the NYSE.  Yesterday, Richard Russell joined the ranks of writers who now believe that the government is manipulating the markets:

And the world is gradually waking up to the extent of the market manipulation in the United States. Richard Russell last night…

August 5, 2009 -- I guess I should come clean and admit it. After reading all about Goldman Sachs and studying Paulson and Geithner and former NY Fed Chairman Friedman, I have become almost hopelessly cynical about the markets. Is anyone ethical? Is anyone honest? I'm starting to wonder. Where money is concerned, is there anything Wall Street or the bankers won't try? 

Rumors of manipulation have been around ever since I started writing Dow Theory Letters in 1958. I always pooh-poohed those rumors, believing that it was the losers who always blamed their losses on manipulation. But now I'm not so sure. 

For instance, I watched yesterday's close on the NYSE minute by minute. The Dow was fluctuating back and forth -- up 5 points one minute, down 3 points the next minute. But with one minute to go, the Dow suddenly spurted 33 points higher. I stared at my computer screen in surprise, and I asked myself, "What the hell was that?" It seemed apparent that "somebody" wanted a noticeable higher Dow at the close. 

The market can be manipulated on a daily basis or maybe for a week. But in the big picture, as to the primary trend, I don't believe the stock market or the economy can be manipulated. Although heaven knows that Washington is trying -- throwing unprecedented trillions of dollars at the US economy. It's never been tried before, but won't trillions of dollars be enough to manipulate the great tide or the primary trend of the market? Maybe for a few weeks or even a few months, but I still don't believe that the primary trend can be halted or reversed, no matter who tries and no matter with how many Federal Reserve dollars. 

The study of the market is part theoretical and part philosophical, and that is what makes it so fascinating. There are certain forces that are so giant, so irresistible that man has not been able to harness them. The tide of the ocean is one. The revolutions of the moon around the earth is another. And I believe the primary trend of the market is a third. The stock market is an invention of man, but although man invented it, like Frankenstein, the tide of the market, the great primary trend of the market, is beyond the power of its inventors to manipulate. 

We can't control the primary trend. Ironically the best we can do is to identify its direction, and even here there are doubts and arguments. Man has invented the X-ray and the Internet, but it's ironic that man has not invented the fool-proof way to identify the direction of the primary trend of the stock market. 

Some of the best minds in the nation have applied themselves to unraveling the mysteries of the stock market. Yet, to my knowledge nobody has come up with the ultimate method of beating the market. I'd say that the stock market is the ultimate mystery to which men have applied their intelligence. How do we know that no one, to date, has solved the mystery of how to beat the market? We know because the day someone discovers how to consistently beat the market, on that day the market will cease to exist. It won't be a market -- rather it will be a sure thing. And one man will be able to accumulate most of the wealth of the world. 

I've worked for over 50 years with the Dow Theory. A basic tenet of Dow Theory is that it is not infallible. The good and the bad (frustrating) part of Dow Theory is that it requires interpretation. Robert Rhea wrote that "those who demand least from the Dow Theory gain the most from it." I might add that those who demand most from the Dow Theory are the ones who will be most frustrated by it…..




Here are some numbers today:


The yield on the 10 yr T note is 3.76%.

The dollar rose .46 to 78.03.

The euro fell .0055 to 1.4353. The pound fell around .02 to 1.6780 and the yen fell .58 to 95.37.

Crude oil fell 3 cents to $71.94.

The CRB lost 3.66 to 264.77.




This news hit the airwaves early and initially caused gold to spike:


BoE has just announced it's intention to extend Quantitative Easing program by another 40%, from £125 Bln to £175 Bln,..

What you seeing Mr King?.. Clearly not the green shoots of CNBC,..

My guess is this expansion of QE is baked in the cake every quarter for the next few years,.. How long before the bond vigilantes catch on?..

I fully expect that the next wave of this crisis lies in the gilt market,..




The jobless claims report was not bad but still indicating the market is contracting:


U.S. jobless claims fall sharply 

WASHINGTON, Aug 6 (Reuters) - The number of U.S. workers filing new claims for jobless benefits dropped more sharply-than-expected last week, a government report showed on Thursday, boosting views that the labor market and the economy were stabilizing. 

Initial claims for state unemployment insurance benefits fell 38,000 to a seasonally adjusted 550,000 in the week ended August 1 from 588,000 the prior week, the Labor Department said. 

A Labor Department official described the period under review as "uneventful" and said it appeared the distortions to the weekly data caused by the auto plant closures were out of the way. Analysts polled by Reuters had forecast new claims to edge down to 580,000 last week from a previously reported 584,000 count. 

However, the number of people collecting long-term unemployment benefits rose by 69,000 to 6.31 million in the week ended July 25, the latest week for which the data is available. The so-called continuing claims had declined for three straight weeks. The insured unemployment rate was unchanged at 4.7 percent for the fourth straight week. 

In a sign that the trend was toward a moderation in the pace of layoffs, the four-week moving average for new claims fell 4,750 to 555,250 in the week ended August 1. The four-week moving average is considered a better gauge of underlying trends as it irons out week-to-week volatility. The moving average has declined for six consecutive weeks.




Here is the real story:


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

  • Associated Press Headline And Lead: "New jobless claims drop more than expected... The number of newly-laid off workers seeking unemployment insurance fell last week, the government said Thursday, fresh evidence that layoffs are easing."
  • Labor Department News Release: click here.
  • Key Numbers: "The advance number of actual initial claims under state programs, unadjusted, totaled 463,062 in the week ending Aug. 1, a decrease of 48,296 from the previous week. There were 382,792 initial claims in the comparable week in 2008."
  • My Spreadsheet (click Download 20090806yoy).

Here's my uneducated interpretation - Year over year, unadjusted initial jobless claims are clearly still rising hard (+21%), but not nearly as hard as they were back in may (+74%). So, you could say that the economy is not shedding jobs as fast as it was. For me what counts is whether the economic contraction is decelerating, but rather whether it is still contracting. At 463K, the unadjusted number is still way over the roughly 332K value for end of July 2001 when the previous recession was officially ending and the 338K value in 2002 when the stock market bottomed (see last week's report). I think the outlook is for continued economic contraction and increasing unemployment based on this data.

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. Its not as high as it was, but its still way over the economy bottoming value.




Commercial paper is starting to rise and libor is falling. The 3 month Libor is .46 per cent per annum.

The banks may be starting to lend:

US commercial paper outstanding rises in week-Fed 

NEW YORK, Aug 6 (Reuters) - The U.S. commercial paper market expanded in the latest week, breaking a string of declines amid signs that the severity of the global credit crisis is starting to ease, Federal Reserve data showed on Thursday. 

For the week ended Aug. 5, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, rose by $10.7 billion to $1.076 trillion outstanding, from $1.066 trillion the previous week. 

Asset-backed commercial paper outstanding fell $3.0 billion after a $900 million rise the previous week. 

U.S. asset-backed commercial paper outstanding fell to $434.8 billion outstanding in the latest week from $437.8 billion the previous week. 

Unsecured financial issuance outstanding fell $400 million after a fall of $26.6 billion the previous week. 

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


This is not good.  CEO's confidence is waning:

CEO Confidence Worsens; Employment Worries Widen 

After showing gradual improvement, CEO confidence shows marked decline

NEW YORK, Aug. 6 /PRNewswire/ -- Chief Executive magazine's CEO Index, the nation's only monthly CEO Index, dropped to 63 in July, after showing gradual improvement. All components of the index are down, with Employment Confidence taking the largest hit. 

February saw the lowest ebb of the overall CEO Confidence Index at 39.2 increasing to a peak in May of 75.7. Almost nine in ten leaders (88.8 percent) rated the Current Conditions Index as bad, an increase from June (86.3 percent) and May (81.6 percent). 

What's worse is that pessimism over employment is reaching new heights. The Employment Confidence Index declined 25 percent with 57 percent of CEOs expecting continued decrease in employment next quarter. Over 95 percent rate the current employment environment as bad -- the highest level for 2009. Less than 5 percent think employment conditions are normal and virtually no one (0.4 percent) thinks they are good. 

The Capital Spending Index shows a majority of business leaders think capital spending will hold over the next quarter while a sizeable minority (39 percent) expect capital spending to drop. "We're currently treading water," commented one respondent. "Once the federal stimulus dollars stop (our life preserver), we'll sink to the bottom from exhaustion. It would happen anyway. The government is only delaying the inevitable. We need to go through the pain before we can get on the road to recovery." 

CEOs' sentiment is mixed on where we are in the slowdown. 33 percent believe the worst is yet to come, 35 percent believe the worst is happening now, and 29 percent believe the worst is behind us. The cause of renewed CEO pessimism has many sources. One respondent remarked, "Healthcare Reform, especially should President Obama's plan be approved will have devastating effects on the economy. Also, the Climate Bill [Waxman-Markey], if approved will have a significant negative impact on the economy." Another commented, "The foolish and politically motivated decisions of the Obama administration is having a permanent and profound effect on all business decisions people are making. 
There will be no 'rally'." "The current direction of the administration will deepen the downturn and strangle the private sector with increased taxation, unemployment and socialization of business in the US", observed a third CEO. 

Though the gloom is pervasive some like Tim Koltek, CEO of Terrapin Energy, are hopeful. "We are both pursuing purchasing capital equipment and proceeding with hiring more personnel. We wouldn't be doing so if we didn't think the worst was behind us." …


This is the big story of the day.  By 2011 48% of all mortgages will be underwater;


About half of U.S. mortgages seen underwater by 2011

Wed Aug 5, 2009 5:12pm EDTBy Al YoonNEW YORK (Reuters) - The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.

Home price declines will have their biggest impact on prime "conforming" loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.

"We project the next phase of the housing decline will have a far greater impact on prime borrowers," Deutsche analysts Karen Weaver and Ying Shen said in the report.

Of prime conforming loans, 41 percent will be "underwater" by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties' value, up from 29 percent, it said.

"The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding," the analysts said. Prime jumbo loans make up 13 percent of the total market.

Deutsche's dire assessment comes amid a bolt of evidence in recent months that point to stabilization in the U.S. housing market after three years of price drops. This week, the National Association of Realtors said pending home sales rose for a fifth straight month in June. A widely watched index released in July showed home prices in May rose for the first time since 2006.

Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.

The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough.

Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were "affordability products" originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said,

Of option adjustable-rate mortgages -- which cut payments by allowing principal balances to rise -- 89 percent will be underwater in 2011, up from 77 percent, the report said.

Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.

"For many, the home has morphed from piggy bank to albatross," the analysts said.



The CFTC has just announced that they are going to put on position limits in energy.  Lets hope that they do the same with the precious metals on the short side:

FTC Issues Rules to Block Oil Market Manipulation -

Good afternoon Chris and Bill, 
I hope the new rules to prevent oil market manipulation will also apply to metals trading. Based on what is reported below it would soon resolve many of the problems if it was actively applied.

I assume that all commodity markets should be policed to the same standard. 
Best wishes, 

Here is the first part of Bloomberg report of the announcement:-

The Federal Trade Commission issued final rules today designed to prohibit oil market manipulation by imposing fines of as much as $1 million per violation a day.

"This new rule will allow us to crack down on fraud and manipulation that can drive up prices at the pump," FTC Chairman Jon Leibowitz said in a written statement. "We will police the oil markets -- and if we find companies that are manipulating the markets, we will go after them."

The rules prohibit fraudulent or deceptive conduct that could harm wholesale petroleum markets, such as making false public announcements of planned pricing or output decisions, or false statistical or data reporting, the commission said. So- called wash sales, which are intended to disguise the liquidity of a market or the price of a particular product, are also prohibited, the commission said.




Looks like a judge did not like the SEC agreement with Bank of America.  He is reviewing the order:


Judge sets hearing on BofA-SEC settlement

Look like the Cabal ran up against someone in the system who is not bought and paid for!

Judge sets hearing on BofA-SEC settlement

Judge wants to hear more Monday on BofA's $33M settlement with SEC over Merrill bonuses




This is another shocker.  Senator Jim Bunning disclosing his conversation with FDIC chairwoman Bair:


US Sen Bunning: FDIC's Bair Said Up To 500 More Banks Could Fail



WASHINGTON -(Dow Jones)- Federal Deposit Insurance Corp. Chairman Sheila Bair believes up to 500 more banks could fail, a U.S. senator said Bair told him in a recent meeting.

"She told us that unless something dramatic happens, we could lose up to 500 more banks," Sen. Jim Bunning, R-Ky., said Thursday at a hearing of the Senate Banking Committee on the foreclosure crisis.

Bunning said Bair made the remarks in a recent meeting.

"That means that people who make mortgages in local places .... people that could really help in a foreclosure will not be there," Bunning said.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@

This from the Harry Schultz Letter.


He thinks there is going to be a bank holiday one day after August 25.09 ie. the day after the FDIC quarterly report:


I personally think it is a little too early.  Jim Sinclair also believes it is too early.  Anyway here is the news story on it:

 have the deepest respect for Dean Harry, but would normally not believe the potential for what dear Harry proposes.

However, with the present war between politically directed monetary policy and FOMC directed monetary policy I have to suggest serious consideration of the following.

There certainly is no harm to be done by doing what Dean Harry suggests.

Harry Schultz newsletter

Conclusion: Stand by for a possible bank run & bank holiday on Aug 26th, after the news breaks on the 25th. (FDIC 2nd Qtr. Report)

This is in line with the HSL prediction of a US bank holiday in Aug/Sept.

If you live in the US, get 3 to 6 months household expense money out of banks now.

Got to go.


speak to you on Saturday.




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