Saturday, August 29, 2009

august 29.09 commentary.

Good afternoon Ladies and Gentlemen:
 
First of all, I would like to report that 3 banks failed last night, one in California, one in Minnesota and the other in Maryland.
The losses to the FDIC is about .5 billion dollars.  However they must share in potential losses of close of 1 billion dollars.
 
Gold closed up by 11.50 to 957.00.  Silver rose by 57 cents to 14.78.  The open interest on the gold comex rose by only 1000 contracts
as some of the commercials continued to bail out.  The OI on silver remained constant.
 
I would like to point out that gold remained strong all day despite the weakness in the Dow. Gold and silver also remained strong with a slight rally in the dollar.
 
We may be witnessing a fundamental change where gold will now start to trade on its own merits and not manipulated.  There is good reason to believe that central banks
do not wih to lease any more gold and silver into the markets.
 
The release of the COT report confirmed more commercial covering of short positions.
 
This next piece caught my eye:
 
Barney Frank: Yes, We Will Pass Ron Paul's "Audit The Fed" Bill

Joe Weisenthal|Aug. 28, 2009, 8:13 AMhttp://www.businessinsider.com/barney-frank-yes-we-will-p
ass-ron-pauls-audit-the-fed-bill-2009-8
-END-

 

end

 

It seems that Barney Frank is down in his polls and the public want an audit of the Fed.  Barney Frank stated that Dr

Pauls bill will be passed in October.

end

 

As for silver, I am a little intrigued in the numbers although I have my doubts as their authenticity.

Friday morning saw the OI on silver to be a little over 12,000 contracts.  By closing time, the final tally for OI on silver going into first delivery day was

a little over 7000 contracts or 35 million oz.

 

You must also add the options exercised to this figure.  They generally put this out on first day notice.

 

We may see a little fireworks in silver in Sept.  Here is a commentary by Adrian on this matter:

 

This is huge, especially since we still have 2 days (today and Monday) left in the "roll" from September silver to December silver. Usually silver gets hammered during the roll period. There were over 12k contract in September still open as of yesterday. It will be interesting to see how many remain after Monday for delivery. This is HUGELY bullish for silver.

end.

 

Here are some numbers for the day's trading:

 

The yield on the 10 yr T note is 3.44%.

What made the move in gold today especially compelling is the dollar ROSE .31 to 78.65. The euro lost .0067 to 1.4302. The pound was little changed and the yen rose .68 to 93.67.

Crude oil closed up 25 cents to $72.74.

The CRB went up 1.29 to 257.81.

The Dow fell by 36 points.

end.

 

From Garic:

 

Garic…

Almost all stock sentiment indicators from insider selling to investors intelligence are at bullish extremes. Insiders are selling at record percentage levels and investment letter writers etc. are bullish consistent with peaks. Hulbert’s Gold sentiment is at very low levels. The Gold stock charts are tight and explosive across the board. The currency charts are tight and explosive across the board. Yesterday, the Gold market bottomed first, the crude market bottomed second, the euro bottomed third and S&P’s last. For months the stock market has been leading other markets. Art Cashin and another CNBC analyst mentioned this fact this morning saying we are all going to have to be currency traders now. That is twice in two weeks the $ reversed down while stocks were still selling off. Once again this morning as Gold and the Euro made new high’s the stock market mysteriously sold off. So far Gold and the Euro have barely budged.

The financial markets have discounted a V recovery. My recent research verifies reversals in disposable personal income and year over year changes in jobless claims have been coincident indicators consistently at the very end of recessions. This morning Personal income was reported flat with June and equal to the lowest level of the recession. Jobless claims have come off their highs but the last few weeks have been disappointing at best. The ? is does the end of the recession cause them to reverse or does their reversal mark the end of the recession. My point is employment is going to be very critical here and now for the financial markets any disappointment in a recovery in unemployment and thus personal income could be the trigger for stocks and Gold. Since the beginning of quant easing/monetization in March Gold is virtually unchanged and the S&P’s are up 50%. I do not buy that if stocks reverse down, here Gold will necessarily follow it especially since twice in the past 2 weeks the opposite has occurred, with Gold rallying with stocks down and stocks reversing to catch up with the $ reversal. Is this foreign $ diversification, I think so. The game may be changing.

Meanwhile, the Fed bought an additional $30.1B in Treasuries, Mortgages and Agencies last week for a 2 week total of $100.7B. At a time when the street and the Fed are discussing exit strategies, the Fed has accelerated the monetization of the debt. I would expect that I am not the only one watching what they are doing and not what they are saying. The re-appointment of Ben Bernanke may have sent a clear message to the world that O’Bama is only interested in saving Wall Street, regardless of what he may tell saying publicly. The ROW may have lost its patience with Washington & Wall Street and the markets may be showing the emerging signs of a change that we can believe in.

***

end.

 

Officially the Fed bought 30 billion in treasuries and thus a total for 2 weeks of 100.7 billion. They bought most of the 7 yr bond through their swaps with the Euro/foreign boys.

 

Here is another statistic worth reporting:

 

The POMO which stands for Permanent Open Market Operations is money that is lent to the brokers.  Generally it is TOMO  or temporary.

Lately it made been all Permanent and the dollars given to the brokers since April 2009 have totalled 270 billion dollars. This figure is 2 weeks old so it may be now over 300 billion dollars.

No wonder the stock market is flourishing.  It is all of these paper bills sloshing around.

Not only in the government the leader in GDP with over 50% of GDP, it is also the leader in Insurance and now leader in Investment with its ownership of the banks and Wall Street.  You can see the figures and how this plays out in Von Greyertz's paper at the end of this commentary.

e nd/ 

 

In other economic news:

08:31 Jul Personal Income 0.0% vs. consensus 0.1%; Spending 0.2% vs. consensus 0.2%
Jun Income revised to (1.1%) from (1.3%) 
Spending revised to 0.6% from 0.4% 
Jul PCE Deflator (y/y) (0.8%) vs. consensus (0.9%) 
PCE Core (y/y) 1.4% vs. consensus 1.4% 
PCE Core (m/m) 0.1% vs. consensus 0.1%. 
* * * * *

U.S. consumer spending up 0.2 pct in July 

WASHINGTON, Aug 28 (Reuters) - U.S. consumer spending rose as expected in July, data showed on Friday, lifted by the government's "cash-for-clunkers" program that fueled demand for autos. 

The Commerce Department said spending rose 0.2 percent after increasing by a revised 0.6 percent in June, previously reported as a 0.4 percent gain. 

Analysts polled by Reuters had forecast spending, which accounts for about 70 percent of U.S. economic activity, rising 0.2 percent in July. Adjusted for inflation, spending was up 0.2 percent after gaining 0.1 percent in June.

-END-

end.

 

Personal income came in flat and spending wasup only .2 per cent in July.  Generally this is not a sign that the economy is growing with the consumer flat.

With all of the stimuli thrown by the Fed I would expect consumer sentiment to be high:

 

I guess I am wrong:

 

Consumer mood at 4-month low 

NEW YORK (Reuters) - U.S. consumer confidence fell to its lowest in four months in August on worries over high unemployment and dismal personal finances, though the mood managed to improve from earlier this month, a survey showed on Friday. 

The Reuters/University of Michigan Surveys of Consumers said its final index of confidence for August fell to 65.7 from 66.0 in July. 

That was the lowest since 65.1 in April but above economists' expectations for 64.5 and also higher than this month's preliminary reading of 63.2 

"Confidence rebounded in late August as consumers increasingly expected improved conditions in the national economy even as they reported the worst assessments of their finances since the surveys began in 1946," the report said. 

Consumers rated the current economic conditions the worst since March, when the stock market hit 12-year lows. This index fell to 66.6 from 70.5 in July. However this was also an improvement from 64.9 earlier this month. 

Consumers' one-year inflation expectations fell to 2.8 percent from July's 2.9 percent. Five-year inflation expectations also dropped to 2.8 percent from July's 3.0 percent.

-END-

 

This next passage floored me.  Dennis Lockhart is a Fed Governor from  the Atlanta fed.  Here is his statement with respect to

the unemployment rate in the usa:

Fed official bucks the party line... admits unemployment is 16%

Friday, August 28, 2009

From Newsmax:

The real U.S. unemployment rate is 16 percent if persons who have dropped out of the labor pool and those working less than they would like are counted, a Federal Reserve official said Wednesday. 

"If one considers the people who would like a job but have stopped looking -- so-called discouraged workers -- and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent," said Atlanta Fed chief Dennis Lockhart…

http://www.thedailycrux.com/content/2707/Cruxallaneous

-END-

 

The Fed got a 30 day reprieve by the judge in order to file their appeal. It seems that the attorney general needs to give the Fed 30 days in order to appeal a ruling against it:

 

Fed wins delay of disclosure order pending appeal

 Section: 

By Jonathan Stempel
Reuters
Friday, August 28, 2009

http://www.reuters.com/article/ousiv/idUSTRE57R5BE20090828

NEW YORK -- The U.S. Federal Reserve won a delay of a federal judge's order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received.

Chief Judge Loretta Preska of the U.S. District Court in Manhattan stayed her August 24 order in favor of Bloomberg News, which had sought the information under the federal Freedom of Information Act, so that the central bank could appeal.

The Fed's board of governors has worried that disclosure would stigmatize the participating banks, threatening both them and the U.S. economy.

It argued disclosure threatened "irreparable harm to these institutions and to the board's ability to effectively manage the current, and any future, financial crisis."

The case and a similar one involving News Corp.'s Fox News Network LLC raise the issue of how much the public has a right to know about how the government is bailing out a troubled financial system.

The Fed was not immediately available for comment.

Preska directed the Fed's board of governors to file a notice of appeal and an emergency stay application with the 2nd U.S. Circuit Court of Appeals.

She also said Bloomberg will not, for now, insist on a search of "official files" at the Federal Reserve Bank of New York, after the central bank's representation that a search would likely be fruitless.

The case arose when two Bloomberg reporters submitted FOIA requests about actions the Fed took to shore up the financial system in 2007 and early 2008, including an expansion of lending programs and the sale of Bear Stearns Cos. to JPMorgan Chase & Co.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, U.S. District Court, Southern District of New York (Manhattan), No. 08-9595.

* * *end.

 

Here is a commentary from Mike from Mexico on this:

 

confidence or a confidence scheme? Hi Bill!,br> So the Federal Reserve does not want to identify the financial firms that received emergency funding to protect them from a loss of confidence? WHAT! Instead, we subject all banks and financial firms to the same suspiscion by not reporting that information. The way you generate confidence is through full and honest disclosure. When you actively seek to cover up information that is material and should be disclosed, you then create a lack of confidence and trust. This policy decision then seems to create the exact outcome that they seek to prevent, and at the same time they sully the healthy banks under the same cloud of doubt that should be focused on the zombie banks.

This is yet another documented example of the shady behaviour that is the reality at the highest levels of economic leadership, instead of the 'open and transparent' administration that was promised. And while we are told almost everyday how things are much better now and that the major meltdown has been averted, if things are so good then why are we even having the discussion about banking confidence? I guess the administration does not believe their own spin.
cheers!
MexicoMike

end.

 

There is a  article by  Egon Von Greyerz that is great reading:

 

A Shocking Fall

 

http://matterhornassetmanagement.com/newsletter/?newsletter=21

click on the blue for the article.

 

The last article is a must for everyone to read and it is from Jim Willie and it is titled

USA Bank Enemies at the Gates:

You can retrieve the article at www.gold-eagle.com

(I cannot copy the graphs).

Pay special attention to the Dubai Construction loans that are gorging the banking system ,

and of course, what China is doing:

 

 

US Bank Enemies At The Gates
Jim Willie CB                        August 27, 2009


home: Golden Jackass website
subscribe: Hat Trick Letter
Jim Willie CB is the editor of the "HAT TRICK LETTER"

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

While all manner of attention remains transfixed inside the United States on a remedy and recovery of its bank sector, once again Americans make dangerous assumptions. They tend to assume that the US Federal Reserve near 0% interest rates, Quantitative Easing (aka exploding Printing Pre$$ output), endless liquidity facilities (e.g. TALF), TARP funds (aka Wall Street slush fund), Stress Tests (rigged), bank stock sales (aided by FASB accounting fraud), bank carry trades (exploiting low short-term & higher long-term rates), and the passage of time can revive the US banking industry. They tend domestically to overlook the gradually worsening insolvency condition. Banks are bracing for a new wave of commercial mortgage losses, of prime Option ARMortgage losses, and credit card losses. The delinquency rate of prime Option ARMs is now higher than subprime home loans!!

Harken back to the summer 2007 when the hack USFed Chairman Bernanke called the bank crisis merely a subprime problem with upper limit potential for $200 billion in bank losses, and no risk of spilling over to the real USEconomy, and surely not the cause of any recession. Bernanke has understood next to nothing in advance, all forecasts hopelessly wrong, but is a great manager of the Printing Pre$$ Operation. So he is loved. This half blind man now is due for reappointment to USFed Chairman post, his past failure the qualifications for future service. The same is true of Treasury Secy Geithner, whose failure at the New York Fed was his qualification for current service. The approval of Bernanke is sure to cause a major rift with the Chinese credit masters. Their wishes and warnings have been ignored. Their vengeance is next.

The American perspective is almost always very limited in scope, due to chronic arrogance and delusions of grandeur. Their convenient parochial view tends to focus almost entirely within the United States, its bank leadership, its USFed monetary flexibility, its Wall Street syndicate influence, its federal tax latitude, its bank reserves management, and more. THE REAL THREAT TO US BANKS COMES FROM ENEMIES AT THE GATES, FOREIGN CREDITORS. The dangerous assumption made is that foreign creditors will remain firm and loyal. The arrogance extends from the continued belief that they have no choice, even if the trillion$ frauds on Wall Street occurred, even though such frauds were never prosecuted.

The real threat comes from foreign creditors who must contend with challenges greater than ever experienced, such as:

  • Shrinking or vanished trade surpluses during global slowdown
  • Their own financial systems in tatters (banks, stock & bonds, currencies)
  • Vast regional construction booms gone bust (e.g. Dubai)
  • Numerous nationwide housing bubbles gone bust
  • Gathering storm from the need to liquidate insolvent banks
  • Reserves erosion due to over-weight in US$-based bonds
  • Systemic problems extended from a generation of USDollar reliance.

UAE & CHINA
Take just two important examples, the Persian Gulf and China. Other regions bloated with USTreasurys exist, like Europe and Russia, eager to unload them in what soon could become a torrent. The regional construction boom in the Arab world has an epicenter in Dubai. Unfortunately, it has gone bust, and loudly so. If not for the prompt aid by Abu Dhabi bankers, a vast liquidation of Dubai would have embarrassed them in front of the world. Instead, a new threat comes. The Abu Dhabi rescue next must contend with an indigestion problem, as USTreasurys and likely other US$-based bonds are flooding their banking system. They might own a considerable batch of US bank stocks, soon to be dumped. Ambition led to a whiff of hubris, as fantastic architectural design led to large scope, seen in the skyscrapers and bridges. Not shown are the spectacular communities designed as trees with branches and leaf petals, many empty, busted, and without investment income. But they overdid it, and now must deal with corporate failures and liquidation challenges. But the Persian Gulf bank failures represent the clear and present threat. The outsized projects have yielded to outsized rescues and next outsized indigestion to handle the funds in ways so as to avoid a string of national bank failures. Vast liquidations come, word comes from contacts.

A bank panic in the Persian Gulf could ensue very soon, a back door threat. It would clearly have origins in the United Arab Emirates, spread to the entire Persian Gulf like to Saudi Arabia, Kuwait, and elsewhere. From this global toehold, the bank panic could then spread to London, New York, and points in Europe. The UAE bankers must manage their situation. They are loaded to the gills with USTreasurys, the main currency used in the liquidations and rescues local to the UAE. They also have pet stock accounts in big US banks. As further liquidations occur, avoidance of bank failures seems a remote prospect. Watch the enemies at the gates, outside looking in, in urgent need of dumping USTreasury Bonds and other US$-denominated securities.

China must contend with some unique problems. From 2000 to 2005, they insisted on a rigid currency structure of the Yuan pegged firmly to the USDollar. In doing so, they became the 51st state, yoked firmly to the USEconomy and subject completely to the USFed monetary policy. Yet they had no voting rights on USDollar policy. Ironically, now they do as chief creditor nation. Nobody thought twice about accumulation of Chinese debt to replace US income. It was the insane movement known as the 'Low Cost Solution' at the time, a policy that the great majority accepted as the next chapter of progress in the Globalization movement, a policy based in corporate abandonment of US shores. Some, like the Jackass and other analysts on some of these gold journal websites, gave loud warning of a time bomb in construction certain to explode down the road. We are now down the road, reaping the bitter rotten harvest of the latest Economic Myth chapter.

China is experiencing a 40%+ decline in export trade. They have a mammoth $550+ billion stimulus plan that might have run its course. They have banks that are failing on a low level. Their stimulus might have found its way as much to their Shanghai stock market as to bank lending. Their industrial expansion is primarily linked to global trade and the export markets. As much as they would like to generate internal demand, it cannot prevent over 1000 industrial plants from shutdown, already done. More are to come. They respond with Yuan-based swap facilities in numerous foreign lands, but that can only accomplish so much in export markets. China is actively attempting to diversify its reserves. The reality (not a joke) is that they are trying to cobble together 2000 different $1 billion deals to secure hard assets in exchange for USTreasury Bonds, enough to dump their $2000 billion US$-based hoard at risk. They are acquiring stakes in foreign mining firms, stakes in mining projects, and entire properties. They are cutting fewer but larger energy deals, which include development of infrastructure and communities. The inescapable fact of life is that China has embarked on an USTreasury dumping initiative. They are even acquiring industrial property in Europe, unloading up to $10 billion per month in USTBonds. This aids the Euro Central Bank, stuck with too much bad debt from its southern member nations. They are dealing with the impaired debt from PIGS nations by means of vast commercial and industrial property sales. Discounts are being seen for both the USDollar and British Pound Sterling. Details are in the August Hat Trick Letter Gold & Currency Report.

FDIC DESPERATION UNMASKED
Loan loss reserves at US banks are at a shockingly miserable low level. They not only hide their badly impaired (ruined) credit assets, but they inadequately furnish their loan loss reserve accounts. Notice the trend in coverage ratio for loss reserves (in red) that trends down down down. Filling the loan loss reserves eats into stated earnings, a process forbidden if bank stock prices are to continue up up up. Resolution is sought. Bold lies about their shaky condition works at both ends. It is very difficult to give an accurate number of the failed US banks, when more are failing every week, on an accelerated basis. The failures of Colonial and Guaranty rocked the bank sector in the last two weeks, enough to set back the Federal Deposit Insurance Corp by over $5 billion. Their fund is dead broke. They already raised bank fees once this year, and are likely to do so again. That should crimp bank lending, in reports out just today. The declared official list of troubled banks stands at 416. Surely, the true number is closer to 1000.

The FDIC has responded in two ways. They have opened the door for foreign financial firms to rescue the growing list of insolvent US banks, taking equity in exchange for infused funds as capital. This is unprecedented. Could this be due to the general insolvency of the great majority of big US banks? Yes! The FDIC also announced it might appeal to the USCongress for more funds, sure to spark heavy debate. The FDIC is designed to be a self-sufficient company, but it is a basket case instead. Worse, the FDIC head Sheila Bair, despite her valiant resistance to the USDept Treasury lordship, has its own ethical problems. The FDIC has avoided bank shutdowns on a broad basis. They have thus permitted losing situations to grow much worse. Case in point is the Colonial asset portfolio, some of which are to be liquidated at 65% losses. Where was the FDIC several months ago? The answer is not pretty. The FDIC in my opinion has acted as the new investment banker agent for Wall Street. They have not shut down banks and liquidated them. They rather seek to feed assets to the Wall Street firms and thus avert more FDIC fund drainage. The FDIC has, like in courtship matchmaking, delivered insolvent midsized banks to the Wall Street syndicate for ready processing and grand asset raids. The FDIC has not done its job. Many more US banks are set to fall like flies in the summer Texas heat, almost all at once. The estimate of 150 or 200 US banks likely to fail soon, stated by Rochdale Securities analyst Dick Bove, is a gross under-statement, a very conservative low estimate, convenient for political circles, a pipedream on Main Street. He was brave to make the statement, and took heat.

USTREASURY AUCTION DECEPTION
The deception continues, worth mentioning regularly, worth harping on. THE REMOVAL OF PILLARS FROM BENEATH THE USDOLLAR FOUNDATION CONTINUES, INVITING A VIOLENT RESPONSE BY FOREIGN CREDITORS. The degree of monetization is staggering for USTreasurys. Issuance must be covered by the US$ Printing Pre$$ machinery, since the USGovt requires up to 7% of the entire global economy (its size, not its savings) to match that issuance. The USFed monetizes with Permanent Open Market Operations quickly after auctions, thus hiding their motive to monetize debt. Debt securities are taken by the primary bond dealers, only to find their way quickly to the USFed on their Permanent Portfolio. If the USFed bought them directly at auction, a firestorm of controversy would result immediately. Instead, the credit market observers are totally asleep at the wheel, or more likely badly compromised. CHINESE LEADERS SURELY NOTICE. This practice has come out into the open. Zero Hedge is on top of it, like expert sleuths. See their latest exposure data, the USFed's dirty little secret entitled "$270 Billion Of POMOs To Date Running Ahead Of Schedule" (CLICK HERE)

The USFed established a gigantic Dollar Swap Facility. Last September 2008, it expanded this facility from $290 billion to $620 billion in order to enable a rush into the USTreasurys. The same $Swap Facility enables hidden monetization now, as foreign accounts chock filled with borrowed USDollars (in blue) bid on USTreasurys (in red). The USFed expanded balance sheet is also shown (in yellow). This is an old chart, but it makes the point well. Historically, monetization results in a severe devaluation of the inherent currency being debauched. This time will be no different.

Before showing a gold chart, something bears mention. USTreasurys are the current raging bubble, consuming wealth on a global scale. This represents a rush into bad money, soon to be recognized as a Third World Debt security. It is being actively discounted by cash currency intermediaries, in the unofficial restructuring of debt taking place. This is NOT in the financial news. However, a greater pox is evident. In the last couple weeks, a truly perverse phenomenon has begun to show itself, a rush into the worst junk imaginable. The stock rally in AIG, Fannie Mae, and Freddie Mac has taken root. They are seeing quite a runup in stock share values. Details are eye-opening. Since July, AIG has gone from 10 to 40 per share, Fannie Mae (FNM) from 0.5 to 1.7 per share, Freddie Mac (FRE) from 0.5 to 2.0 per share. Including Citigroup, a dead walking giant, this group accounts for 20% or more of the entire NYSE trading volume. THIS IS A RUSH TO JUNK. This is an end stage, just like in 1999 when WebMD.com was a hot stock with no income, priced on clicks and eyeballs.

The movement of chasing the worst quality stock issues brings to memory the famous quote by Sir Thomas Gresham in the 16th Century. He said, "Bad money drives out good money." It does so on a temporary basis, while the craze continues, while the denial is rooted, while the propaganda prevails. But real money emerges triumphant after the inevitable crisis that ensues. THAT REAL MONEY IS GOLD, ALONG WITH SILVER, EVEN PLATINUM.

GOLD STILL AT THE DOORSTEP
Many complain that the gold price cannot seem to overcome the important $1000 mark. It is true, the mark is stubborn. But $1000 gold would still be dirt cheap, given the flood of money on a global basis. The reasons why it should be overcome are growing a long list, and the gold price has a very firm support. The wizards did not enjoy the taste of a big single-day move up last Friday August 21st. The Powerz came out guns blazing on the following Monday to eradicate the gain. The 50-day moving average has provided reasonably strong support in the last month or more. Both it and the 200-day moving average are rising, a trend signal.

Pressures continue to mount. Surely impatience comes to many faithful gold investors, in whatever form (stocks, bullion, coins). The gold breakout will come suddenly, without warning. In my view it could easily come from ENEMIES AT THE GATE, foreign creditors responding to their own stress. It might come from a domestic shock from any of 20 potential events also. The US financial press gives the foreign front very limited coverage. When the breakout occurs, the gold price will vault past 1050 in a screaming move. The press will tell the wrong story, focusing again on domestic factors within the USEconomy, like price inflation, as they miss the importance of the USDollar. While prices might be due to rise in surprising fashion soon, the real issue is the global monetary crisis centered upon the USDollar. Foreign reserves are over 60%, nearly 65% in USTreasurys. The glut will be relieved before long. The fire sale comes, and afterwards the United States will suffer.


THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

From subscribers and readers:
At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

"Thanks for the quality of the information you put forth in your newsletter. I read a lot of newsletters, blogs, and financial sites. The accuracy of your information has been second to none over the past couple of years."
   (MikeP in Missouri)
"You freakin rock! I just wanted to say how much I love your newsletter. I have subscribed to Russell, Faber, Minyanville, Richebacher, Mauldin, and a few others, and yours is by far my all time favorite! You should have taken over for the Richebacher Letter as you take his analysis just a bit further and with more of an edge."
   (DavidL in Michigan)
"I used to read your public articles, and listen to you, but never realized until I joined what extra and detailed analysis you give to subscription clients. You always seem to be far ahead of everyone else. It is useful to 'see' what is happening, and you do this far better than the economists! I can think of many areas in life now where the best exponent is somebody not trained academically in that area."
   (JamesA in England)
"You seem to have it nailed. I used to think you were paranoid. Now I think you are psychic!"
   (ShawnU in Ontario)
"Your unmatched ability to find and unmask a string of significant nuggets, and to wrap them into a meaningful mosaic of the treachery-cum-stupidity which comprise our current financial system, make yours the most informative and valuable of investment letters. You have refined the 'bits-and-pieces' approach into an awesome intellectual tool."
   (RobertN in Texas)


Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com


Thursday, August 27, 2009

August 27.09 commentary.

Good evening Ladies and Gentlemen:
 
Gold closed up by 1.10 to 945.50.  Silver fell by 4 cents.
 
The gold comex OI fell by a rather large 5600 contracts despite gold remaining neutral.  Speculators retreated and some commercials covered.
With respect to silver, the silver comex OI fell by 990 contracts.  In this arena, silver specs and smaller commercials are entering  and the large shorts, JPMorgan and
HSBC are supplying the paper.
 
One must take special interest in the sideways trading of gold for the past 2 months with a declining OI.  This is generally very bullish, so  when the wedge contracts, something big happens and it could be either way ie. a huge spike upwards or downwards.
 
The results of the 7 yr auction on bonds are in and here they are:
 

Treasury auction results…13:03 7-yr auction yields 3.092% with 46.29% allotted at the high
Bid/cover 2.74 vs. average of the past 6 auctions 2.44 
Indirect participation 61.2% vs. average of the past 6 auctions 43.7% 
In reaction: 
2-yr 1/32 to 0.93% 
10-yr flat at 3.45% 
Dow 9543.22 (0.30) 
end.

 

As you will notice the bid/cover was better at 2.74.  However the yield on the 2 yr rose by 1/32 of a point.  The 10 yr remained flat.

The indirect participation came in at a whopping 61.2% instead of 43.7%.

The general perception in our camp?  The Fed bought the whole ball of wax.

As soon as the results were in, the dollar started to tank.  The usa index ended the day

down by  57 points to 78.11.  At around 2:30 in hit 77.90 but rose back above 78 to close at 78.11

 

Here are some other numbers:

 

 

*Crude oil briefly took out $70 on the downside and then turned around to close up $1.06 per barrel to $72.49.

The CRB rose .34 to 256.52.

The yield on the 10 yr T note is 3.47%.

The Dow closed up by 37 points as we are seeing massive amts of POMO (permanent open market operations) money filtering into the economy every day.

These dollars are finding their way into the stock market which is becoming a bubble.  The other bubble is the bond bubble.

 

Here is Garic's take on the auction and todays trading:

Garic...

Once the last auction of this week was completed the deflation trade began to reverse. Interestingly most markets made their lows early this morning, hours before the actual auction occurred; the rally across all markets picked up steam once the auction was completed. Bloomberg and the mainstream media are trying to report that as stocks began to rally the dollar started to sell off and commodities began to rally. This propaganda is false. For the 2nd time in two weeks the Euro & Gold made their lows first then stocks followed. The order of bottoms this morning in EST were Gold @ 9:50, Crude Oil @ 10:03, the Euro @ 10:07 & S&P futures @ 10:10. So either someone is trying to diversify out of the $ and used this morning’s deflationary intervention to buy Gold, Crude & the Euro or one of the Cartel jumped ship and covered their shorts before the intervention had finished. Regardless, it looks like the dollar weakness is starting to lead all of the markets instead of follow. The long term Gold chart could not be more bullish. Seasonal tendencies are now on our side; the last 2 major breakouts in Gold were September 05 and September 07.

end.

 

Bill Holter let out steam today.  Here is his commentary :

Bill H:

Recovery or empty elevator shaft?

To all; Recovery? In my opinion, no chance. But we're getting "good" (less bad) economic numbers and the stock market keeps on chugging higher (still down 35% from 2 years ago) so why worry? It really boils down to "why". Why has the stock market gone up and why (other than bogus reporting) have we gotten less bad economic numbers? Because the Fed and Treasury have created so many freshly borrowed and printed Dollars and papered the globe with them.

Besides bankrupting the nation, all of this newly created credit has brought demand forward. Would there have been a blip in car sales or home sales without cash for clunkers or the $8,000 new home buyer rebates? All that has happened is that natural future sales of cars and houses were brought into the present and won't be available in the future. This is the epitome of "I want it and I want (deserve) it now" syndrome that got us into problems in the first place, and now more of the same is being used to portray and "prove" recovery.

All of the excess borrowing by the Treasury is doing is cushioning the fall but it will not generate a true and self sustaining recovery. This is nothing more than Wimpy getting a hundred Dollar loan which will allow him to buy more hamburgers today at the expense of going hungry in the future. But the situation is far more dire because the Treasury has bankrupted itself in the process which ensures that the value of the Dollar will approach zero. No country has ever "devalued" its way out of recession, maybe policy makers believe it is different now because they are borrowing in their own (freely printable) currency. If they truly believe this, all I can say is good luck because a collapse of the Dollar will take the entire global banking system with it.

As for the stock market rally that is reminiscent of the 1930's, my advice is look out below! Insiders have been selling their shares at as rapid a pace as they ever have and private equity firms are "shopping" their positions in quest for an exit strategy. These are truly investors that are "in the know", why do you suppose they are jumping ship at a record pace if the current green shoots are going to blossom? The easy answer is that the math doesn't add up and they know it.

Mutual funds and in particular pension plans have been "forced" into the market so they wouldn't be left behind and show poor relative performance numbers. The powers that be have set this rally up as their exit strategy while selling a bill of goods to the last bastion of huge public capital. I believe this latest "pump and dump" scheme will end shortly with a public that faces NO BIDS. Sure there will be a public reason to point at but the real reason will be that public monies will be running low and the insiders will have concluded their exit. It has worked like this for years but this time the sheep will be sheared to death and the Treasury will be shunned to the point where an unscheduled holiday arises. My advice is to stock up on hot dogs and hamburgers because your corner store won't be open when this next holiday appears out of nowhere. Regards, Bill H.

 

 

end.

 

OK lets go for some economic news today:

 

Today we saw the release of 2nd quarter GDP and it was slightly better showing a decline of 1% annually:

U.S. economy shrinks at 1 pct rate in Q2 

WASHINGTON, Aug 27 (Reuters) - The U.S. economy contracted more slowly than expected in the second quarter as smaller declines in consumer spending and exports offset a record inventory liquidation, government data showed on Thursday, while corporate profits rose. 

The Commerce Department said gross domestic product, which measures total goods and services output within U.S. borders, fell at a 1 percent annual rate, unchanged from last month's estimate. 

Analysts polled by Reuters had forecast output shrinking at a 1.5 percent pace in the second quarter after collapsing 6.4 percent in the January-March quarter.

end.

 

The Shadow statistics website, John Williams,  shows the real decline at 2% and not 1% using the government's own figures.

 

The jobless claims continue to fall:

 

New US jobless claims fall, continued at 4-month low 

WASHINGTON, Aug 27 (Reuters) - The number of U.S. workers 
filing new claims for jobless benefits fell last week to 570,000, and those collecting long-term unemployment benefits dropped to the lowest level since April, government data showed on Thursday. 

Analysts polled by Reuters had forecast new claims slipping to 565,000 in the week ending Aug. 22 from 580,000 the prior week, which had been previously reported as 576,000. 

Continued claims fell to 6.133 million in the week ended Aug. 15 from 6.252 million the prior week. That was the lowest since the week ending April 4, when they were 6.045 million. 

end.

 

Here is the real story on the jobs front:

 

Unadjusted Year Over Year: Labor Department Initial Jobless Claims Up 32%

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

  • Associated Press Headline And Lead: "New jobless claims and total benefit rolls drop... The number of newly laid-off workers filing claims for jobless benefits dropped last week, and the number of people remaining on the rolls also fell, evidence that layoffs have eased."
  • Labor Department News Release: click here.
  • Key Numbers: "The advance number of actual initial claims under state programs, unadjusted, totaled 453,936 in the week ending Aug. 22, a decrease of 4,049 from the previous week. There were 345,127 initial claims in the comparable week in 2008."
  • My Spreadsheet (click Download 20090827yoy).

Here's my uneducated interpretation - Things remain bad with initial jobless claims still way over the roughly 330K value which historically has represented a bottoming of the economy and stock market.

The AP spin is worse than usual by focusing on the noise (.5% drop in initial claims) rather than the fact that jobs continue to be lost much faster than the economy could possibly be replacing them. 5 of the last 8 "seasonally adjusted" numbers were better than this week's and yet they make it sound like this was a good week!

 

end.

 

The number 1 retail guru out there is David Davidowitz.  They have not let him on CNBC since Feb, however he is seen regularly on Bloomberg.

This man is rarely wrong on the retail scene.  This is what he has to say today:

"In the Tank Forever": U.S. Consumers, Retailers in a "Death Spiral," Davidowitz Says

Posted Aug 27, 2009 07:30am EDT by Peter Gorenstein

Retail maven Howard Davidowitz paid another visit to Tech Ticker this week. And despite signs of improvement in consumer confidence and retail stocks rising, Davidowitz is steadfast in his belief the consumer is dead.

Rather than summarize, let me just highlight some of his best one-liners:

On retail:

  • "The retail business is terrible... It's almost all negative."
  • "We're going to close hundreds of thousands of stores."

On the consumer:

  • "They’re still over leveraged, they're losing jobs, their credit has been cut back."

On America:

  • "We are in the tank forever. As a country we are out of control, we're in a death spiral."

On the stock market:

  • "We're in terrible shape. That's what the fundamentals tell me. I can't explain the stock market."

But it's not all gloom and doom, believe it or not. Davidowitz, who runs a retail consulting firm Davidowitz and Associates, thinks certain discount retailers, grocers, drug store chains and a select few department stores can survive and prosper in the future.

Most notably he likes the "extreme discounters" like Family Dollar, Dollar Tree (which was up almost 5% Tuesday after the company raised its outlook) and 99 Cents Only Stores. And, in the department store sector, he says, Kohl's will "be the only winner" because of their cost controls. (Davidowitz has no positions in stocks mentioned.)

http://finance.yahoo.com/techticker/article/312114/"In-th
e-Tank-Forever":-U.S.-Consumers,-Retailers-in-a-

-END-

Davidowitz used to be on CNBC all the time. Haven’t seen him lately. Wonder why?

 

This next passage is something I have been warning you about, the rise in ARMS mortgages:

23:59 Adustable-rate mortgages set to rear their ugly heads, choke off housing recovery - NYT
More than 500K ARMs are scheduled to have their monthly repayments bounce from the comfortably low initial ones to unaffordable higher ones over the next four years. A research firm says that since February, defaults and foreclosure rates on option ARMs have passed those on subprime mortgages. Many option ARMs are not available for refinancing. One firm expects banks to lose $112B on option ARMs written from 2005-7.
Reference Link (registration required) 

However the two big stories came later in the day and they refer to the release of the FDIC results and the Fed asking the judge to more time as it wishes to appeal yesterdays

verdict.

 

First the FDIC story:

 

US problem bank list hits 416, insurance fund dips 

WASHINGTON, Aug 27 (Reuters) - The number of problem U.S. banks and thrifts rose sharply to 416 in the second quarter of 2009 from 305 in the prior quarter, as the industry reported a $3.7 billion loss, the Federal Deposit Insurance Corp said on Thursday. 

The FDIC said the industry swung back to a loss in the second quarter after reporting a $7.6 billion profit in the first quarter, primarily due to costs associated with rising levels of bad loans and falling asset values. 

The agency reported its insurance fund used to safeguard bank deposits dipped 20 percent in the second quarter to $10.4 billion. The decrease in the fund was chiefly caused by an $11.6 billion increase in the money the FDIC set aside for anticipated bank failures.

-END-

 

First of all, it looks like the FDIC got about  9 billion dollars of emergency money from TARP.  Thus their negative 6 billion dollars is now about 3.5 billion positive. The FDIC can draw on a line of credit of 500 bilion if they need.

 

Here are some commentaries on the FDIC.  I will try and explain what they mean:

 

from Bix Weir:

Sheila Bair is writing checks she can't cash!

Hi Bill -
The BS coming out os Sheila Bair and the FDIC's mouth is astounding if not criminal.

The latest release from the FDIC is a doozy!

http://www.fdic.gov/news/news/press/2009/pr09153.html

First of all she's trying to reclassify the DIF account not to include reserves for banks that have already failed saying there is now $42B in the account when there was only $13B at the end of Q1.

My count of the bank failures since the end of the 1st quarter goes like this:

2nd quarter - 24 failures totaling $8.2B with $13.7B in loss sharing

3rd quarter - 31 failures totaling $10.3B with $34.5B in loss sharing (with a month left)

Did you notice how "loss sharing" has jumped from 170% of the estimated cost to 340%??? Are they trying to hide losses for later down the line?

So with the DIF at $13B as stated in the 1Q CFO statement and hits of $18.5B since the 1st quarter I have a hard time believing her that there is $10B left in the DIF...unless she changes how it is all accounted for.

Let's add some of those loss sharing promises to that of $48B and it starts to get scary.

But wait! Sheila has also Guaranteed $320B in TLGP loans including $260B for "Bank and Thrift Holding Companies, Non-Insured Affiliates"...can you say CIT?!

http://www.fdic.gov/regulations/resources/TLGP/total_issuance7-09.html

Don't get me wrong. I think Chairman Bair is trying her best to instill the false confidence the administration wants but her statements like this make my blood boil...

"The FDIC was created specifically for times such as these. No matter how challenging the environment, the FDIC has ample resources to continue protecting depositors as we have for the last 75 years. No insured depositor has ever lost a penny of insured deposits...and no one ever will."

In case Sheila didn't know the FDIC has no authority to create money out of thin air so proclaiming that no one will ever lose money is either naive or criminal.

Sheila Bair is guaranteeing TRILLIONS of deft obligations with NOTHING IN HER CHECKING ACCOUNT!

God help us!
Bix

 

OK lets start with the analysis:

The FDIC had 13 billion dollars of DIF  (funds to its credit) at the end of its 1st quarter.  It lost 8.2 plus 10.3 billion in the next 2 quarters or 18.5 billion.

Thus a negative 5.5 billion.

However, they received 9 billion in funds from a secret TARP fund.  Thus they are revenue positive by a few billion dollars.(3.5 billion dollars)

But and this is the big but:  they are sharing in losses of 13.7 billion in the second quarter and a whopping 34 billion in the 3 rd quarter.

On top of that, the FDIC is also on the hook for 320 billion in TLGP loans which includes 260 billion for Bank and Thrist Holdiing companies...in other words the famous company CIT>

 

The total number of banks at risk total 416, on top of the 81 that failed this year already and the 29 last yr.  What is more alarming is the total assets at risk:  300 billion dollars.

(this is not including the 320 TLGP money).

 

So you can see that Bair is guaranteeing trillions of debt obligations with zero in her checking account.

The FDIC, the insuring arm of the banks is bust!!

 

Here is story No 2:

END-

Federal Reserve Says Disclosing Loans Will Hurt Banks

Aug. 27 (Bloomberg) -- The Federal Reserve argued yesterday that identifying the financial institutions that benefited from its emergency loans would harm the companies and render the central bank’s planned appeal of a court ruling moot.The Fed’s board of governors asked Manhattan Chief U.S. District Judge Loretta Preska to delay enforcement of her Aug. 24 decision that the identities of borrowers in 11 lending programs must be made public by Aug. 31. The central bank wants Preska to stay her order until the U.S. Court of Appeals in New York can hear the case."The immediate release of these documents will destroy the board’s claims of exemption and right of appellate review," the motion said. "The institutions whose names and information would be disclosed will also suffer irreparable harm."…

http://www.bloomberg.com/apps/news?pi
d=20601109&sid=aAOhgVw78e3U
-END-

Dave from Denver notes...

The Clearing House Association, which is ABN Ambro, Bank of America, Bank of NY, Deutsche Bank, HSBC, JP Morgan, US Bank and Wells Fargo, have filed a Declaration Statement with the Court in the Case of Freedom Of Information Act case of Blooberg vs. The Fed, in which they essentially state that if the Court allows access to Fed documents AND if any "Audit the Fed" Laws are passed, it could lead to a complete financial system collapse.

The audacity and arrogance of these thieves is unmatched by anything I've ever seen in history. This Declaration Statement is the equivalent of letting a pedophile out of jail and giving him a job running a child daycare center. This is beyond mind-blowing. I'm linking the complete accounting as posted on zerohedge.com, but here is the coup de grace of the Declaration, which as zerohedge points out, is a what group bank racketeering looks like:

If the names of our member banks who borrow emergency funds are publicly disclosed, the likelihood that a borrowing bank's customers, counterparties and other market participants will draw a negative inference is great. Public speculation that a financial institution is experiencing liquidity shortfalls - which would be a natural inference from having tapped emergency funds - has caused bank customers to withdraw deposits, counterparties to make collateral calls and lenders to accelerate loan repayment or refuse to make new loans. When an institution's customers flee and its credit dries up the institution may suffer severe capital and liquidity strains leaving it in a weakened competitive position.http://www.zerohedge.com/article/racketeering-101-bailed-out-banks-threaten-systemic-collapse-if-fed-discloses-information#attachments

May a god of some sort help us all if the Court gives any weight to this.

***

This is a big story.  If the judge refuses to allow the Fed time and they disclose, then we find out all of those nasty things the Fed did with taxpayers money.

Goldman Sachs would not be a happy camper.

 

I have been following this story for a while and it is scary!  Soybeans went into backwardation today as the front month price exceeds the future months.

The price of this key livestock feed is rising!!:

 

Hi Bill,
Previously Eric deCarbonnel has predicted the US will run out of soybeans by the end of this northern Summer. Summer is nearly over and sugar and soybeans are now in backwardation. The backwardation in soybeans is steep.

http://www.marketskeptics.com/2009/08/backwardation-in-soybean-and-sugar.html

He predicts a food futures default will lead to hoarding world-wide. Nations will seek to bolster their currencies to lower domestic commodity prices. They will do this by dumping the $US, leading to its collapse.

http://www.marketskeptics.com/2009/08/world-running-out-of-food-before-our.html

 

That is all for today.  I will report in on Saturday.  I expect to see a few more bank failures.

 

Over and out

 

Harvey.

 

 

 

 

 

 

Search This Blog

Loading...