Saturday, September 5, 2009

Sept 5.09 commentary.

Good morning to all and best wishes for a happy and safe labour Day Weekend:
 
Gold  yesterday lowered in price marginally by 1.00 dollar even though the cartel whacked the metal prior to the jobs number.
Silver too was hit but recovered nicely.  By the end of the day, it recovered all its losses to remain unchanged.
 
What is fascinating is the comex OI on both gold and silver.
 
The gold comex OI rose appreciably by close to 15000 contracts to 425000.  The silver OI rose another 4100 contracts to 112400. It generally means that there is massive interest on both
metals and that the commercial banks (with no gold or silver backing) are supplying these future obligations.
 
The COT report released after the market closed showed the commercial banks digging in their heels as they supplied massive paper on both silver and gold.
This report is of Tuesday.  You can just imagine what these guys supplied to keep the price of gold from breaking 1000, on Wednesday, Thursday and yesterday.
 
Here is the COT report:
 
First gold:
 

Gold

*The large specs increased longs by a modest 1,327 contracts and decreased shorts by 192.

*The commercials decreased longs by 23 contracts and increased shorts by 5,343.

*The small specs increased longs by 3,076 contracts and reduced shorts by 771.

 

end.

 

Note the huge increase in shorts by the banking cartel from last COT report.

 

And now silver:

 

Silver…

*The large specs increased their longs by 6,577 contracts and increased shorts by 1,278.

*The commercials reduced longs by 326 contracts and increased shorts by 5,012.

*The small specs reduced longs by 683 contracts and reduced shorts by 722.

 

end.

 

Same story for silver as gold.

 

The trading of comex gold on Wednesday was absolutely fascinating.  With zero switches the total volume on the gold comex was 165000.

Remember that these figures do not get into the COT report until next week.  Paper gold was flying.

 

Also witness the huge increase in the GLD "inventory" of gold:

 

MarketVane’s Bullish Consensus for gold jumped 3 points to 83%. The HGNSI was unchanged at 25.2% but the GLF ETF for once responded to market conditions and added 14.65 tonnes to 1,078.01 tonnes.

 

end.

 

In summary, we see that gold demand is occurring everywhere.  The inventory at the GLD is rising. We are witnessing countries like Russia purchase 20 tonnes of gold followed by China purchasing 18 tonnes.  We see increasing demand coming from Turkey and India.  Even countries like Venezuela, and Brazil are purchasing gold and moving it to its shores.

 

We see that the Monetary authority in Hong Kong ask the Bank of England for its 2 tonnes of gold.  This gold is the only gold that China owns outside of its territories.

The Bank of England is now sweating as it now must go into the market and purchase physical and send it back to Hong Kong. It will be a problem for them if other nations ask for their metal back as well!

We are seeing statements from Chinese officials, stating that they will dishonour "derivative" commodity contracts with the West.

 

What is also alarming is the extreme drop in the Libor dollar rate (3month) to .31% per annum, during the past 18 trading sessions.  The Libor rate shows the appetite for usa dollars.  A higher libor rate

indicates demand for dollars is high and thus the falling libor rate indicates that demand for dollars is plummeting.  China has orchestrated massive swaps in their currency the yuan and that has dampened demand for dollars. The purchase of gold by foreign nations (using dollars as the monetary vehicle) certainly has helped in the low demand for dollars.

 

However, the usa has flooded the global market with its dollars.  The Federal Debt as of yesterday is 11.797 trillion.  Last year it was 9.6 trillion, so in one year 2.2 trillion dollars has been printed and officially circulated.

 

On the 8th of Sept, the huge swaps with England and  Euroland must be unwound. Remember that the usa used the dollars oversees to buy their own debt. This is going to be exciting to see how this swap is unwound. Also remember that swaps do not enter official debt figures as they are only temporary swaps and must be unwound.  If they do not get unwound, then they enter official debt levels.

And now for economic news of the day:

The big news was the jobs report and it indicated more job losses to 216000.  The unemployment rate rose to 9.7% as 93000 people sought jobs.

I would like to highlight to important stats :

1. the B/D plug was an addition of 150,000 jobs.  This plug was in the service sector and in construction.  This is a total bogus number.

2. the U6 which is the old method of analyzing the jobs number came in at 16.8%, a rise of .5%.

 

also John Williams shadowstats.com indicates that the real unemployment rate is 21.5%.  Here is the report for you to read:

U.S. economic news:

08:30 Aug nonfarm payrolls reported (216K) vs. consensus (230K); unemployment rate 9.7% vs. consensus 9.5%
Jul nonfarm payrolls revised to (276K) from (247K). 
* * * * *

08:31 Follow-up: Jun nonfarm payrolls revised to (463K) from (443K); May unrevised at (303K) 
* * * * *

08:30 Aug average hourly earnings 0.3% vs. consensus 0.1%; average weekly hours 33.1 vs. consensus 33.1
Jul average hourly earnings revised to 0.3% from 0.2%; average weekly hours unrevised from 33.1. 
* * * * *

U.S. August payrolls fall 216,000, jobless rate 9.7 pct 

WASHINGTON, Sept 4 (Reuters) - U.S. employers cut a fewer-than-expected 216,000 jobs in August, while the unemployment rate rose to a 26-year high, the government said 
on Friday in a report showing a still fragile labor market. 

The Labor Department said the unemployment rate rose to 9.7 percent after dipping to 9.4 percent in July and the decline in payrolls was the smallest in a year. The department revised job losses for June and July to show 49,000 more jobs lost than previously reported. 

Analysts had expected non-farm payrolls to drop 225,000 in August and the unemployment rate to rise to 9.5 percent. 

The labor force increased by 73,000 in August, indicating the return of some jobless workers who had given up looking for work accounting for part of the rise in the unemployment rate. 

Since the start of the recession in December 2007, the economy has shed 6.9 million jobs, the department said. Stubbornly high unemployment is wearing on consumer confidence and crimping domestic demand, pointing to an anemic recovery from the worst slump in 70 years. Consumer spending accounts for over two-thirds of U.S. economic activity. 

However, the August report confirmed the pace of layoffs was easing from early this year, when nearly three quarters of a million jobs were lost in January. 

Manufacturing employment fell by 63,000, with a total of 2 million factory jobs lost since the start of the recession. Payrolls in construction industries dropped 65,000 after 
falling 73,000 in July. 

The service-providing sector purged 80,000 workers in August, while the goods-producing industries shed 136,000 positions. 

Education and health services continued to add jobs, with payrolls increasing 52,000 in August after rising 21,000 in July. Government employment fell 18,000 after slipping 28,000 in July.

-END-

 

The ECRI report came out and it indicated a huge increase in expected inflation that will hit the usa.  Obama would not be happy at this report:

 

US inflation pressures rise to 10-month high - ECRI 

NEW YORK, Sept 4 (Reuters) - A gauge of U.S. inflation pressures rose sharply to a ten-month high in August, indicating that deflation is unlikely under current economic conditions, a research group said on Friday. 

The Economic Cycle Research Institute's U.S. Future Inflation Gauge (USFIG), designed to anticipate cyclical swings in the rate of inflation, rose to 89.6 in August from 84.6 in July. 

The index has now risen from a 51-year low in March to a ten-month high, said Lakshman Achuthan, managing director at ECRI. 

"Thus, the risk of deflation has clearly dissipated for now, but inflation is not yet a clear and present danger," he said. 

The July USFIG annualized growth rate, which smoothes out monthly fluctuations, shot higher to 6.5 percent from negative 8.8 percent in July, revised from negative 8.6 percent. 

The gauge was pushed higher by rising commodity prices, said Achuthan.

-END-

 

The next two reports are pretty damaging to the usa.  The first is a Wall Street report on the increase in prime mortgage delinquencies.

The second by renowned writer,  Frank Veneroso describes Mortgage Armeggedon.

Here are both reports:

20:08 Prime borrowers increasingly coming under pressure - WSJ
The Journal reports that prime borrowers are now falling behind on mortgage and credit-card payments at a faster pace than those in the subprime space. The paper notes that such losses could ultimately exceed those from weaker borrowers given that prime loans account for 80% of US bank exposure to mortgages and credit cards. Citing data from the Mortgage Bankers Association, the Journal points out that rising delinquencies on prime mortgages helped drive the total mortgage delinquency rate to a record 9.24% in Q2. Delinquencies on mortgages made to prime customers rose 5.8% last quarter, compared with a rise of 1.8% among subprime customers. However, the delinquency rate for prime loans was 6.4%, significantly below the 25.4% for subprime loans.
Reference Link (subscription required) 
* * * * *

and now Frank Veneroso:

 

U. S. Economy
More On Mortgage Armageddon

September 4, 2009

Preface

I have found professional investors have been willing to consider various adverse scenarios now that the stock market has had a 50% plus rally and the economy will show significant positive growth in this third quarter. Professional investors are willing to be concerned that the market has become overbought and may be ahead of the economic recovery. I find that many express great concern about the outlook for the commercial real estate and commercial real estate mortgage markets – which are relatively small in size. I find that professional investors are especially willing to discuss the possibility of a significant economic slowdown in 2010 once the government’s fiscal stimulus peaks.

But what I have found investors as well as business economists unwilling to consider is the Mortgage Armageddon scenario which I have touched upon yet again and again. It seems to me that these parties are willing to game all manner of future perturbations in the markets and the economy, but they are unwilling to consider a scenario that involves a renewed phase of serious financial crisis. Somehow they seem determined to ignore the fact that the unprecedentedly high level of the private debt-to-income ratio – which has been ultimately responsible for the crises of the last two years – still persists and can still pose a major threat. Somehow they cannot deal with the prospect that the cause of financial crisis has not gone away, that all the policy measures taken to date have not made it go away, and that the financial system still remains profoundly at risk.

This is why I believe the Mortgage Armageddon scenario is so important. If it unfolds, we will have renewed financial crisis. Except now the policy makers will have fired almost all their ammunition. Further declines in Obama’s poll ratings and likely greater political conflict may obstruct new major policy initiatives. The profound moral hazard behind today’s risk-seeking in markets may dissipate if investors come to believe today’s bailout policies are no more of a safeguard than the Greenspan and Bernanke puts which failed them in the recent past.

Executive Summary

  1. Bank of America reports that it has cut its rate of foreclosures in half in order to give the government’s mortgage loan modification programs a chance.
  1. At the same time it reports surging mortgage delinquencies.
  1. As a consequence it expects an increase in its foreclosures for the months to come.
  1. Two years ago there were about 1.3 million homeowners delinquent on their mortgages and about 100,000 foreclosures completed monthly. In August there were 3.1 million delinquent homeowners and about 200,000 foreclosures completed each month.
  1. The implication is that there may be a rising future backlog of foreclosures ahead.
  1. However, matters are worse than that. One has to combine the delinquency data with the data on the delinquency cure rate.
  1. Several years ago almost half of mortgage delinquencies in any time period returned to prompt status as borrowers caught up on their mortgage payments. Today, only about 6% of delinquencies "cure" – that is, return to current payment status.
  1. The number of delinquencies has risen about two and a half fold over the last two years. If one creates a "cure adjusted" measure of delinquencies – equal to chronic delinquencies – the number of such delinquencies highly likely to end in foreclosure has risen, not by 2.5 times, but perhaps by five times or much more.
  1. Consequently, the likely future backlog of foreclosures may be exploding.
  1. This means that the increase in foreclosures indicated by Bank of America might prove to be extremely large.
  1. This would put downward pressure on home prices, increase loan-to-value ratios, feed back into more delinquencies and foreclosures and propagate a downward spiral.
  1. At the same time, this increase in home supply might coincide with a fall off in demand as the first-time home buyer credit program winds down in the coming two months.


end

 

Please note that the rate of foreclosures and delinquencies are now exploding northbound.

 

Here is a story that indicates that everything is not that rosy in the usa:

 

Food stamp list soars past 35 million: USDA

Thu Sep 3, 2009 3:17pm EDT

"WASHINGTON (Reuters) - More than 35 million Americans received food stamps in June, up 22 percent from June 2008 and a new record as the country continued to grapple with the worst recession since the Great Depression of the 1930s.

-END-

On Friday night, there were 5 bank failures with deposits of 1.1 billion dollars.  The FDIC had to fork over .5 billion dollars and share in losses with acquiring banks for .5 billion dollars.

The banks were small with no big surprises yet.

There are rumours that Wells Fargo is in deep trouble.  They have the highest home equity loans on the planet.  To Canadians these are termed  2nd mortgages.  They have over 65 billion dollars worth of these mortgages.  There chance of recovery is almost nil.

 

Tuesday will be a very volatile day.  Expect turbulent markets as everyone is back from holidays.  Many believe that the stock market prices for stock is way too high and expect massive selling. This will be matched with newly dollars printed to support the massive selling.  It will be an epic battle.

 

see you on Tuesday night.

Harvey.

Thursday, September 3, 2009

Sept 3.09 commentary.

Good evening Ladies and Gentlemen:
 
I guess everyone is very excited as we witnessed gold climb all the way to 997.00 this afternoon and silver break the 16.00 dollar barrier.
Gold closed the regular comex session at 997.00 up 22 dollars with silver at 16.17 up 87 cents.
 
The open interest on gold comex climbed a remarkable 27000 contracts.  It was this news that sparked gold to climb as close as possible to the 1000 barrier.
The open interest on silver comex climbed by a smallish 1500 contracts.
 
I am going to dwell on a few big stories.  The big one came from Hong Kong.  The monetary authorities in Hong Kong are recalling all of their gold from the Bank of England.
 
First the story and I will explain its significance:
 
Hong Kong recalls gold reserves, touts high-security vault

In a challenge to London, Asian states invited to store bullion closer to home

By Chris Oliver, MarketWatchHONG KONG (MarketWatch) -- Hong Kong is pulling all its physical gold holdings from depositories in London, transferring them to a high-security depository newly built at the city's airport, in a move that won praise from local traders Thursday.

The facility, industry professionals said, would support Hong Kong's emergence as a Swiss-style trading hub for bullion and would lessen London's status as a key settlement-and-storage center.

"Having a central government-sponsored vault would create a situation where you could conceivably look at Hong Kong as being a hub, where metal could be traded for the region," said Sunil Kashyap, managing director at Scotia Capital in Hong Kong, adding that the facility was the first with official government backing in the region.

The Hong Kong Monetary Authority, which functions as the territory's unofficial central bank, will transfer its gold reserves stored in other vaults to the depository later this year, the Hong Kong government said in an earlier statement.

The monetary authority reported $63 million in physical gold reserves as of July 31, according to its International Reserves and Foreign Currency Liquidity statement. The authority wouldn't disclose where the reserves are held, but local media reports cited gold traders as saying that London's the most likely location. ..http://www.marketwatch.com/story/hong-kong-recall
s-gold-reserves-from-london-2009-09-03
-END-

 

end.

 

I will now try and explain its significance.

There are two foreign gold  depositories in the world:

1. the Bank of England

2.the Federal Bank of New York.

 

These two banks have served as a defensive measure to guard against a foreign attack on various countries.  With gold at one or these two places, the country could be assured

to finance their needs if case of war.

 

However there is a big difference between the two entities.

In NY, the gold there is termed "ear marked" gold and this gold cannot be used by the Bank of NY.  It is foreign owned and insurance etc is paid by the foreign owner.

Fees are collected by the Bank of NY from the foreign entity for the storage.

 

In the Bank of England, however,  gold can only be put on deposit there.  There is no such thing as ear marked gold. Like any cash deposit, the Bank of England, can do whatever it wants with the gold and they generally lease the gold into the market.  In other words, the Bank of England acts as if you deposit cash.  They are clear to use the asset in any way possible and they have a liability to the owner.  It is their obligation to return the gold.  If they cannot, then there is a huge default, and the bank fails!

This is then certainly worth watching!!

 

This is why England is the centre of the leasing process and also the Bank of England is the centre of the two fixes for the price of gold. It is the centre of all physical gold selling.

So now we learn that the monetary authorities are recalling 63 million dollars worth of gold  or about 65000 oz or a little over 2 tonnes of gold.

Although tiny, something is shaking the Chinese and they want they gold back on their soil.

We have known for quite a while that the Bank of England is void of gold.  Somehow these clowns need to purchase 2 tonnes of gold and ship it to Hong Kong.

 

Here is Rob Kirby's take on todays events:

Rob Kirby chips in…

Trying to remember how many times over LBMA sells every ounce

Bill;
I’m sure you’ve seen the headline about Hong Kong pulling their bullion out of London:

http://www.marketwatch.com/story/hong-kong-recalls-gold-res
erves-from-london-2009-09-03?siteid=rss&rss=1

The Hong Kong Monetary Authority, which functions as the territory's unofficial central bank, will complete the transfer of its gold reserves form London by the end of the year, the Hong Kong government said in an earlier statement…..

About half the HKMA's gold reserves are held in physical form, totaling about 2,000 bars valued at 250 million Hong Kong dollars ($32.35 million), according to estimates published by the South China Morning Post…..

Marketing efforts will be launched to convince Asian central banks transfer their gold reserves to the Hong Kong facility, according to reports citing Raymond Lai, finance director with the Hong Kong Airport Authority.

Hope everyone realizes how toxic this could be to the LBMA – which sells EVERY OUNCE in their physical inventory MANY, MANY TIMES OVER. So, when the physical inventory contracts [assuming they actually have the goods to deliver to their rightful owners] one might think this could create a [substantial perhaps?] ripple effect and force some VERY serious short covering.

Interesting to think about it these terms.
Best,
Rob Kirby

 

end.

Here is Bill Holter's take on the situation:

 

And then Bill H:

Hong Kong repatriates Gold reserves

To all; this is probably just for starters. Hong Kong repatriates their Gold reserves for probably one reason and one reason only. They first want to know if they still even exist and if they do, THEY DON'T TRUST THE WEST! PERIOD! So much leasing has taken place and the world is full to the brim with fraud, this is just an example of a sovereign that wants possession of THEIR metal. More of this type of action will blow the lid off the leasing/paper Gold fraud. Hold on for the ride! Regards, Bill H.

end.

 

Here are some numbers for today:

The yield on the 10 yr T note is 3.34%.The dollar ended the day UP .10 to 58.47. Once again we see what the dollar does is a secondary factor for the rise in the gold price.

The euro fell .0020 to 1.4228. The pound rose l.0052 to 1.633 and the yen gained .45 to 92.67.

Crude oil gave up 9 cents per barrel to $67.96.

The CRB gained .11 to 249.74.

The Dow climbed 64 points.

 

The following is very telling: 

 

the gold GLD in the last 6 days have only added 1.6 tonnes of gold to their supposed inventory.

The premium on the Central Fund of Canada's silver and gold both climbed into the high 13.6% percentile:

MarketVane’s Bullish Consensus for gold added 3 points to 83%. The HGNSI was unchanged but the GLD ETF deigned to end a six day unchanged run and added 1.53 tonnes to 1063.36 tonnes. The CEF bullion vehicle closed at a 13.6% premium to NAV, a recently high level.

 

end

The following was the second big story of the day, the jobless claims continue to rise.

Tomorrow is the big jobs number and for sure you will see the famous plug B/D come into play.

However I think you will see the unemployment rise to 9.6% on their official scale.

Unofficially, it is over 16%.  Here is the report:

U.S. economic news:

08:30 Jobless claims reported 570K vs. consensus 564K
Prior week revised to 574K from 570K. Continuing claims for w/e 22-Aug 6.234M vs. consensus 6.130M. Prior week revised to 6.142M from 6.133M. 
* * * * * 

New U.S. jobless claims fell last week 

WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless benefits fell last week, but the prior period's figure was revised up, according to a government report on Thursday that highlighted the fragility of the labor market. 

Initial claims for state unemployment insurance benefits fell 4,000 to a seasonally adjusted 570,000 in the week ended August 29 from an upwardly revised 574,000 the prior week, the Labor Department said. 

Analysts polled by Reuters had forecast new claims falling to 560,000 last week from a previously reported 570,000. 

A Labor Department official described the report as straight-forward. 

The four-week moving average for new claims, considered a better gauge of underlying trends as it irons out week-to-week volatility, rose 4,000 to 571,250 last week. 

The number of people collecting long-term unemployment benefits rose 92,000 to 6.23 million in the week ended August 22, the latest week for which the data is available, indicating that companies remained reluctant to expand payrolls, despite an improvement in the economy's outlook. 

That was well above market expectations for 6.12 million. 

However, the four-week moving average fell 27,250 to 6.22 million. The insured unemployment rate, which measures the percentage of the insured labor force who are jobless, inched up to 4.7 percent in the week ended August 22 from 4.6 percent the prior week.

-END-

 

Here are two reports which show the economy growing a little.  The first is a small increase in commercial paper and the second a small increase in the non

manufacturing ISM number or the service report.  Note however the huge increase in costs as employers need to pay extra dollars to help  in the service component of the economy.

Here are the two reports:

US commercial paper outstanding rises in week-Fed 

NEW YORK, Sept 3 (Reuters) - The U.S. commercial paper market expanded for a third straight week in another sign that the economy may be growing again as a two-year credit crunch eases, Federal Reserve data showed on Thursday.

For the week ended Sept. 2, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, rose by $8.0 billion to $1.162 trillion, from $1.154 trillion the previous week.

Asset-backed commercial paper outstanding rose $19.5 billion to $477.3 billion after rising $41.5 billion the previous week.

Unsecured financial issuance outstanding fell $11.3 billion after rising $12.4 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.

-END-

10:00 Aug ISM Non-Manufacturing 48.4 vs. consensus 48.0
Jul reading was 46.4. 
* * * * * 

U.S. services sector improves in August-ISM 

NEW YORK, Sept 3 (Reuters) - The U.S. services sector shrank again in August, but an index measuring activity was at its highest in nearly a year, according to an industry report released on Thursday. 

The Institute for Supply Management said its services index rose to 48.4 in August from 46.4 in July. That was slightly above the 48.0 median forecast of 70 economists surveyed by 
Reuters. 

A reading above 50 indicates expansion in the sector. The last time the index was at the 50 mark was September 2008. 

The index's business activity component rose to 51.3, up from 46.1 in July. The August reading was its first above 50 since last September. 

The services sector represents about 80 percent of U.S. economic activity and includes businesses such as banks, airlines, hotels and restaurants.

-END-

 

Here is Garic's take on the ISM number:

Garic’s take…

While the main street media will focus on the ISM services index showing more stabilization in the economy (51.3 vs. 46.1), I cannot understate how bullish the ISM services index is theoretically for the POG. Since the Federal Reserve follows an output gap model and not a price stability model, they will view continuing high unemployment as a reason to keep printing as fast as they can. The ISM Services index of employment 43.5 vs. 41.5. Unfortunately, now both national August surveys of purchasing managers have reported a large increase in the amount of managers paying higher prices. The ISM Services index of prices paid 63.1 vs. 41.3. The risks of a stagflation recovery has clearly increased with both of Augusts ISM surveys. If these surveys continue in this pattern purchasing managers will start hoarding materials as inflation expectations continue to rise. Considering the Fed has interest rates at 0%, there is no cost to hoarding.

Recently, I have read numerous market commentators betting on a rally in the dollar as the stock market continues to correct. The theory is that U.S. asset managers will pull in their overseas investments to pay down margin thus increasing the demand for $’s. Personally, I think that is rear view mirror investing; it did work like that last year. However, if the ROW is looking to diversify out of the $, they will use any rallies in the dollar to diversify. This appears to be what is happening here in now as the U.S. stock market is underperforming Gold and the Euro at least over the past few weeks. Once again as inflation expectations rise and the Fed is stuck at 0 for the foreseeable future the risks of holding dollars increases every day. Looking back at last fall it is clear to me the PPT’s interventions to hold up the stock market failed as asset managers used intervention created rallies to lighten up on stocks. The same phenomenon may occur with the $ this fall.

***

This news was all over the internet:

 

Fulford: China taking down banking cabal.

Hi Bill -
Here's the latest from Benjamin Fulford. His sources are telling him the Federal Reserve will be declared bankrupt on Sept. 30th by the rest of the world. He's also the one who gave Rockefeller the ultimatum to stand down last year.

http://benjaminfulford.typepad.com/benjaminfulford/

Chinese to destroy Feds by refusing to honor fraudulent derivatives contracts

The Chinese government has told Chinese companies they do not have to honor derivatives and commodity futures contracts made with Western financial institutions.

This is one of the most important of many nails in the coffin for the soon to implode Federal Reserve Board. The Chinese have every right to renege on those contracts because they were fraudulent. First of all the Feds manipulated the commodities markets to their benefit and to the detriment of the Chinese. They also allowed 100 times leverage thus allowing for astronomical ponzi schemes to be set up. Furthermore, they almost certainly did not properly explain the risks when they made their deals with the Chinese. Now that their attempt to rip off the Chinese is blowing up in their faces, these financial institutions will implode. This will set off a chain of events that will make the Lehman Brothers implosion seem like a storm in a tea cup. The total amount of derivatives contracts outstanding is now over $5000 trillion or 100 times world GDP. In other words it is just a giant illusion waiting to vanish along with the institutions that peddled it.

It is turning into a very interesting September!
Bix

 

It seems that everyone is talking about the Chinese dishonouring their commodity contracts. This will be interesting as it plays out.

 

Tomorrow is the jobs number and expect the cartel to raid gold.  The 1000 dollar barrier is a huge resistance level and judging from yesterday's huge 27000 OI rise, you can expect fireworks tomorrow.

 

If gold breaks the 1000 dollar level on a jobs day it must be construed as extremely bullish.

 

I am having problems with my internet connection, so I hope I will be able to report to you on Saturday.

 

Harvey.

 

Wednesday, September 2, 2009

Sept 2.09 commentary..important

Good evening Ladies and Gentlemen:
 
As I pointed out to you on several occasions, a wedge was developing with respect to gold which is generally very bullish .
Today gold broke out of the wedge to rise by 22.00 to 977.00.  Silver rose by 31 cents up 33 cents.
 
The gold comex OI rose by 2300 contracts, not earth shattering.  The silver Oi also rose by 1600 contracts to 106000.
 
The dust has settled at the silver comex and more silver is standing for delivery.  It looks like at the end of September, 22 million oz of the white shiny
metal will be standing for delivery. This is really high and I doubt very much if the comex has that quantity on hand.
 
Here is Dave Krenzler's view on the silver which is identical to mine: (each contract equals 5000 oz of silver)
 

Bill, silver stoppers are serious this month

Open interest as of yesterday's close in Sept silver was 2,171 contracts, or 10.86 million ounces. As of today, there's been a total of 2,222 contracts delivered or tendered, that's 11.1 million ounces. Again, if anyone can tell me how to determine which portion of that 2,222 was delivered vs. tendered for cash, I'd love to know - if it's possible. What it tells me is that a large investor or number of investors is interested in acquiring a large amount of silver. If the Comex inventories does not change much this much, we know the Comex is a complete fraud and anyone safekeeping their silver at the Comex is risking their custody. The character of the market has shifted quite a bit in past two weeks. There seems to be a large buyer(s) buying every dip. It also seems like physical supply is dwindling...commercial signal failure next.

 

end.

 

I would like to add that gold broke above the huge resistance line of 960.00 with the Dow down by 29 points.  The dollar was down however. We now have clear sailing for gold to ascend the 1000 mark.

 

Here are some numbers for today:

The dollar fell .43 to 78.33. The euro gained .0058 to 1.4267. The pound rose .0145 to 1.6270. The yen went up .56 to 92.15.

Crude oil closed unchanged at $68.05 per barrel.

The CRB gained .65 to 249.63.

The yield on the 10 yr T note fell to 3.29%, which represents quite the collapse in long Treasury rates and fosters talk of deflation…

The Dow has I indicated to you above closed down by 29 points.

 

You must pay attention to this comment from this well informed investor, Mr Dennis Gartman. Mr Gartman has been a proxy for the gold cartel for quite

some time. He has never got a buy correct..however he generally gets a sell correct. 

The much-abused Gartman Letter deserves credit for its instincts, expressed in the small hours of this morning:

"…we get the sense that something really quite ominous is upon us and that some news… and clearly not good news… is waiting out there on the market’s periphery that shall tend on balance to weigh heavily upon stock prices, shall weigh heavily upon government intervention efforts; shall weigh heavily upon the global capital market’s collective psychology…we have the sense that we are at an historic turning point for the gold market, and that that turning point was made mid-day yesterday when the dollar began the strengthen, as commodity prices began to weaken, and yet gold held steady as a rock."

It looks like something ominious is about to happen.  I heard from reliable sources that there is going to be a big bank failure on Friday..probably Corvus bank.

Also the situation at CIT looks really bad as well!!

end

 

This came from Tom Kee President of Stock Traders Daily, home based in LaJolla California.

This man is generally pretty good in his predictions:

 

Beware, inflation is on the way
Commentary: It's a good time to buy gold and short Treasurys

By Thomas Kee 
LA JOLLA, Calif. (MarketWatch) -- Inflation is coming, so it's time to buy gold and short Treasurys. 

My recommendation this month is based on a shift in an established long-term pattern. Specifically, I reference the relationship between interest rates and the stock market. Since the Federal Open Market Committee began using the target rate in 1997, the stock market has been led by the transition in interest-rate policy. 

Data show we should buy when interest rates stop dropping, and throughout the cycle in which they climb. Then, we should sell and begin shorting the moment interest rates start to drop. If you bought when the last cut was made in 2008, you are still doing OK. This relationship has held for a long time…. 

Prices must climb

Corporations will look for a way to increase revenue, and won't be able to do it by increasing volume. The logical choice is to raise prices, and they will be able to do it because consumers will accept it. This doesn't even account for low interest rates, but that plays a role also. 

Instead, the simple state of our economy will give rise to real inflationary pressures. This will not be commodity driven, and thus won't be discounted by the FOMC. 

Instead, they will be forced to raise rates to curb inflation for the first time in 10 years. That will break the cycle outlined above, and cause interest rates and the market to diverge for the first time since the target rate began. 

Inflation is on the horizon, and there is a logical way to profit from it by buying gold and shorting Treasuries…

Thomas H. Kee Jr. is president and chief executive of Stock Traders Daily, based in La Jolla, Calif.

end.

There were three independent reports on the jobs front:

1, ADP jobs report

2.Challenger --Christmas planned layoff report

3.Trimtabs report

 

I will give you all three but please may attention to the TrimTabs reports as these guys monitor the tax receipts that the treasury receives and they are always the most accurate.

Ok here are the three stories:

1. the ADP story:

U.S. economic news:08:15 Aug ADP Emloyment (298K) vs. consensus (250K)
Jul revised to (360K) from (371K). 

US private sector sheds 298,000 jobs in Aug - report

NEW YORK, Sept 2 (Reuters) - U.S. private employers cut 298,000 jobs in August, fewer than a revised 360,000 jobs lost in July, a report by a private employment service said on Wednesday.

The July decline was originally reported at 371,000 last month.

The median of estimates from 31 economists surveyed by Reuters for the ADP Employer Services report, jointly developed with Macroeconomic Advisers LLC, was for 250,000 private-sector jobs lost last month.

The ADP and Macroeconomic Advisers said its National Employment Report is designed as a proxy of the government's monthly non-farm payrolls report.

-END-

2. Christmas-Challenger layoff report:

 

07:30 Challenger reports Aug job cuts (21%) to 76,456 vs. July's 97,373
Job cuts (13.8%) y/y. Total job cuts in Aug were the second smallest monthly total so far. 
* * * * * 

US Aug planned layoffs fall, 2009 total hits 1 mln 

NEW YORK, Sept 2 (Reuters) - Planned layoffs at U.S. firms fell in August, suggesting less stress on the labor market and improvements in consumer spending and the broader economy in the coming months, a report released on Wednesday showed. 

Planned job cuts announced by U.S. employers fell to 76,456 last month, down 21 percent from 97,373 in July, according to a report released by global outplacement consultancy Challenger, Gray & Christmas, Inc. 

While the rate of layoffs has slowed, the cumulative number of job cuts has climbed to 1.07 million from January through August, 60 percent higher than the same period a year earlier. 

But August's layoffs were the second smallest monthly total so far in 2009, the firm said. It also marked the sixth time in the past seven months that job cuts fell from the prior month. 

"That does not necessarily mean that there will be a sudden surge in job creation as 2010 gets underway, but we will at least be heading in the right direction," said John Challenger, the firm's chief executive, in a statement.

-END-

 

and now

 

3. Trimtabs employment report:

TrimTabs Estimates U.S. Lost 335,000 Jobs in August and 5.9 Million Jobs in Past Year 
Posted : Wed, 02 Sep 2009 10:30:41 GMT 


Massive Job Losses Lead to Big Drops in Wages and Savings: Wages Fall 4.1% Year-over-Year in August, and M2 Savings Drops Record $94.6 Billion in Past Three Months 
SAUSALITO, Calif., Sept. 2

SAUSALITO, Calif., Sept. 2 /PRNewswire/ -- TrimTabs Investment Research estimates that the U.S. economy lost 335,000 jobs in August, which is nearly 50% more than the current consensus estimate of 225,000 jobs lost. In the past twelve months, the U.S. economy has lost 5.9 million jobs, the largest annual job loss in records dating back to 1970.

"A full year has passed since AIG and Lehman Brothers collapsed, yet there is no end in sight to massive job losses," said Charles Biderman, CEO of TrimTabs. "The economy lost at least 300,000 jobs in each of the past 12 months."

TrimTabs' employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from all salaried U.S. employees. Historically, TrimTabs' employment estimates have been more accurate than those of the Bureau of Labor Statistics.

In a research note, TrimTabs explained that large job losses are contributing to huge declines in wages and savings. Based on daily tax deposits to the U.S. Treasury, wages plummeted 4.1% year-over-year in August, matching the decline in Q2 2009.

TrimTabs also pointed out that M2 savings--which consists of bank savings, small-denomination certificates of deposit, and retail money market funds--dropped $94.6 billion in the past three months, the largest three-month decline on record.

"Consumers are yanking record amounts of money out of savings vehicles as they cope with the worst economic slump since the 1930s," noted Biderman. "The report from the Bureau of Economic Analysis that the savings rate was 4.2% in July is dead wrong."

TrimTabs explained that massive defaults on mortgages are spreading to commercial real estate loans, credit cards, and commercial and industrial loans, dashing widespread hopes for a quick economic rebound.

"While many investors are convinced the recession is over, real-time indicators show the economy has not yet bottomed, let alone started to recover," said Biderman.TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections. Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990. For more information, please visithttp://www.trimtabs.com/.
SOURCE TrimTabs Investment Research

end.

 

I want everyone to read the Trimtabs report carefuly and pay special attention to this:

`Consumers are yanking record amounts of money out of savings vehicles as they cope with the worst economic slump since the 1930s.

The report from the Bureau of Economic Analysis that the savings rate was 4.2% in July is dead wrong!``

Trimtabs also explained that massive defaults on mortgages are spreading to the commercial arena as well as credit cards and industrial loans.  This dashes all hope for a quick

economic recovery.

 

Trimtabs reports founded by Charles Biderman is without a doubt the most reliable private service jobs report out there in assessing the labour market.

 

end.

 

US factory orders surprised everyone by declining last month:

U.S. factory orders increase smaller than expected

WASHINGTON, Sept 2 (Reuters) - New orders received by U.S. factories rose a smaller-than-expected 1.3 percent in July, as a rise in aircraft orders outweighed sluggish demand for nondurable goods, government data showed on Wednesday. 

Analysts polled by Reuters were expecting factory orders to rise 2.2 percent. The Commerce Department said factory orders rose for the fourth straight month after a 0.9 percent gain in June. 

Transportation orders jumped 18.5 percent in July on a 105.1 percent surge in civilian aircraft orders. When transportation was excluded, factory orders fell 0.7 percent, the first decline since April. 

Orders for nondurable goods, which include textiles, paper and chemical products, slipped 1.9 percent, the largest drop since December. 

Non-defense capital goods orders excluding aircraft, viewed as a proxy for business investment, slipped 0.3 percent. 

Inventories fell 0.7 percent, the 11th straight monthly decline. Inventories of durable goods were down 0.9 percent, the seventh straight monthly drop. In addition, shipments from factories have declined in 11 of the last 12 months and unfilled orders have declined 10 straight months.

 

end

 

Bill Gross of PIMCO stated today that the usa needs to continue with more stimulus.  He obviously sees no green shoots forming in the market:

 

14:15 Pimco's Bill Gross says to the extent the gov't retracts fiscal stimulus, the chance for a double-dip recession "moves into the realm of possibility"
The comments were made in an interview on CNBC. Gross says the U.S. needs to keep applying fiscal stimulus, such as "cash for clunkers" programs, to keep the economy going. Gross says U.S. 30-yr Treasury bonds are attractive. 

end

This is Bill Holters commentary for today:

Bill H:

Are you ready?

To all; are you ready? Never in the history of financial markets have there been so many landmines in place, each one wired directly to a nuclear bomb that sits atop the ENTIRE global financial system. The "master's of the financial universe" have postponed the coming day of reckoning for so long and in so many different ways that they have backed themselves into a corner where almost any movement at all will trip one of these numerous landmines.

The Fed and Treasury have already blown up and destroyed their balance sheets and thus guaranteeing "banana republic" status of the U.S. for years to come. The banks have another wave of home mortgages about to crest directly on their heads, not to mention the mountain of commercial mortgages that are and will become poisonous enough to destroy the banking system. Consumers are completely in over their heads and in no way can they "spend us" out of this depression. This hail Mary play was used after the 2000-2002 recession, you can fool Mother Nature with a hail Mary pass once, she won't fall for it again because the consumer does not have the available credit capacity to spend anymore.

The Chinese have spoken and their words have been dire. They have called for a new reserve currency and now they tell us "you sold us crap that never had a chance to perform, thus neither will we". They have told anyone and everyone willing to listen that they are going to default on their portion of the $1+ quadrillion pie, the entire structure will collapse! Does the U.S. media report on this? Have investors listened to this? No way.

There are "audit proposals" of the Fed that are running rampant. Can the Fed or Treasury pull their pants down and get a clean bill of health? I don't see any possible way. The Gold is not there, the balance sheet and Dollars outstanding are probably far, far beyond what we have been told. What kind of assets has the Fed been buying? And from who? Most hilarious of all is the Fed telling us "we will monetize Treasury debt to the tune of $ trillions", and this is good? Even an idiot could (and will) figure this one out.

In the metals arena we have had anecdotal evidence for years that the West has been disgorging their hoards of Gold to hold the price down, and more importantly to support the artificial values of their paper issuance. The paper game of suppressing Gold is coming to a close as evidenced by zero contangos, lack of metal inventory movement while contracts by the 1,000's stand for delivery, ETF shenanigan's and a lack of transparency in inventories all over the world. Gold is up about $20 today which is certainly a change of pace and breaking the "2%" rule. Normally Gold makes its move early on and is then capped for the rest of the day, this is not happening today and is very different from the action of the past 10+ years. Technically Gold is breaking up and out of a multi month "pennant" pattern, today and tomorrow should clarify this.

I started this piece with "are you ready?". Are you ready for everything, and I do mean EVERYTHING, to change? Are you ready for volatility to move far beyond the levels of last fall? Are you ready to find out whether or not the "piece of paper" you hold in your hand will actually deliver real Gold or Silver? Are you ready for a financial holiday that will bring us a new currency? Are you ready to find out whether your local grocer will accept your "paper" for their goods? Are you ready to watch your bonds, CD's, MM accounts and retirement accounts take a 50% (and probably much more) purchasing power haircut? Are you ready to be told that you need to be "off the streets by sundown" by someone in a uniform? Are you ready to have zero access to your hard earned capital whether it be bank accounts, stocks, bonds or whatever?

I have only issued a "crash alert" two times previously, today I issue the third. I believe a crash is imminent and will be much worse and far more widespread than anything we have seen over the last 18 months. I believe the day of reckoning has arrived. Are you ready? Regards, Bill H.

 

end.

I will leave you tonight with this frightening article written by Ambrose Pritchard Evans on the plight of Japan. This second largest economy in the world is facing a debt to GDP of 215%

this year. How can they pay for their welfare blitz as tax revenues have declined by 27%.  The bond vigilantes have tough choices to make as debts in Japan rise.  Here is this powerful article

which suggests an economy  torn between the massive deflationary effects of fallen exports and massive printing of money.

One wonders what happens when they need to sell treASURIES TO COVER THEIR DOMESTIC SHORTFALLS.
Bond vigilantes fret over Japan
Japans's tax revenues have collapsed by 27pc over the last year, leaving it unclear how the incoming Democrats can pay for their blitz on welfare spending without flooding the debt markets.

By Ambrose Evans-Pritchard, International Business Editor
Published: 8:28PM BST 01 Sep 2009
Telegraph U.K.

Yukio Hatoyama, prime minister designate of Japan, has said there will be no increase in the public deficit.
 
The International Monetary Fund already expects Japan's budget deficit to top 10pc of GDP this year and next. Gross public debt will reach 215pc of GDP in 2009, the highest in the world. "Japan faces a very difficult fiscal situation," said the Fund in its latest country report.
 
Democrat leader Yukio Hatoyama, who won a landslide victory over the weekend, has pledged that there would be no increase in debt to fund his $180bn boost for child allowances and social policy by 2013, but his advisors are already back-tracking as they examine the dire tax figures.
 
While Japan pulled out of recession in the second quarter, it has barely begun to make up for the 11.7pc contraction of its economy over the preceding year. Industrial production was still down 23pc in July. Exports were down 39pc to the US.
 
The Great Recession has tipped state finances into a deep crisis. Corporate tax revenues have turned negative as refunds exceed payments from companies facing a collapse in profits.
 
Japan's finance ministry has been able to count on a huge pool of domestic savings and a captive bond market to fund Keynesian spending projects over the years, but policy-makers fear that the debt market may reach saturation.

Yields on ten year bonds are currently 1.3pc. "Can these benign conditions be expected to continue in the face of even-larger increases in public debt?" said the IMF.
 
If yields rise to the OECD level of 3pc to 4pc they would cause Japan's debt to spiral out of control. This is no longer a remote possibility. High Frequency Economics says Mr Hatoyama has won the privilege to preside over "the biggest financial meltdown in history."

Japan's $1.5 trillion state pension fund said in April that it would start selling its bonds to cover a $40bn shortfall on its books. Private citizens face the same need. The savings rate has fallen from 14pc to 2pc since 1990.
"The IMF said this could put "significant pressure" on bond markets

Japan has become a laboratory for the world's aging crisis. The work-force began contracting in 2005. The country must now rely on diminishing tax revenues to cover a rising burden of pensioners.

Albert Edwards, a Japan veteran at Societe General, said deflation would trump concerns about excess borrowing. "Inflation has crashed back into negative territory, falling 2.2pc in July year-on-year. This will happen to the West eventually," he said.
 
Wages have been sliding persistently, though disguised by temporary contracts and cuts in bonuses. Cash earnings were down 7.1pc in June year-on-year. While asset prices touched bottom earlier this decade, they have never fully recovered from their peak in 1990. Tokyo land prices are still down by 75pc.

Michael Taylor from Lombard Street Research said Japan made a strategic error during its Lost Decade by waiting too long to pull the monetary levers. "They failed to boost money supply the way the Fed and the Bank of England are trying to do through quantitative easing. Their fiscal packages led to a massive deterioration in public finances."
 
"IMF studies show that as public debt rises above 60pc of GDP fiscal stimulus loses it effect. People anticipate the consequences: higher taxes, and eventually higher interest rates. The bond vigilantes will always get you in the end," he said.
 
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6123107/Bond-vigilantes-fret-over-Japan.html
<http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6123107/Bond-vigilantes-fret-over-Japan.html> 
 


end

I think you have enough to read tonight.

I am now going to pick up my son Stephen who is flying in from San Francisco tonight.

all the best

Harvey.

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