Saturday, September 12, 2009

Sept 12.09 commentary.

Good morning Ladies and Gentlemen:
 
Before delving into yesterday's trading, I would like to report that 3 banks failed last night.  The big one turns out to Corus bank which I speculated, a few weeks ago would bite the dust.
I would like to point out that this Illinois bank with 11 branches is the first bank to fail due to commercial lending practices.  Here is the story:
 
SEPTEMBER 11, 2009, 8:05 P.M. ET.
Regulators Seize Corus Bank
By NICK TIMIRAOS and JESSICA HOLZER
 
Federal regulators seized Chicago-based Corus Bank on Friday, marking the first major bank to be undone by deteriorating construction and commercial real-estate loans
during the current downturn.

The branches and deposits of Corus will be assumed by MB Financial Inc., which has more than $8 billion in assets and over 70 branches in Chicago and its suburbs. MB Financial earlier this month took over the assets, branches and assets of InBank, a small bank based in Oak Forest, Ill.
 
But the status of Corus' prize assets is still unclear. The company's delinquent condo and commercial real estate loans backed by 111 developments will likely be sold by the FDIC in upcoming weeks. A number of real estate companies and private equity firms have been vying to take those assets over in recent months.
 
Among those in competition for the condo assets is a venture of Related Cos., Lubert-Adler Partners LP and other investors; a venture of Miami-based developer Crescent Heights and Dallas-based investor Lone Star Funds; Colony Capital LLC and iStar Financial Inc. and Starwood Capital Group.
 
With total assets of $7 billion, Corus is the third-biggest bank to go bust this year. The FDIC estimates the failed bank will cost its insurance fund $1.7 billion
.

The FDIC this year has brokered sales to private investors, including at IndyMac Bancorp and BankUnited. As more private buyers bid on bank assets, regulators have wrestled in recent months over how much control private equity firms should have over banks.
 
Corus's failure is the latest sign that banks, particularly small and midsize regional lenders, face a new round of pain beyond deteriorating home mortgages. Construction loans accounted for 88% of its outstanding loans at the end of the first quarter, the largest share among any U.S. bank with more than $100 million in loans, according to Foresight Analytics.
 
Corus, which was owned by holding company Corus Bankshares Inc., concentrated heavily on condo construction lending in South Florida and other overheated housing markets. More than half of the bank's $3.9 billion in condo construction loans were in nonaccrual or foreclosure in April.
 
Other commercial real estate sectors are also beginning to get clobbered by the recession as evidenced by the recent bankruptcy filings including General Growth Properties Inc. and the Extended Stay Hotels chain. Commercial real-estate loans could trigger another $100 billion in losses at more than 900 small and midsize banks if the economy deteriorates further, according to an analysis conducted earlier this year by The Wall Street Journal.
 
The bank's failure doesn't come as a big surprise. Federal regulators imposed higher reserve requirements in February, giving the condo lender until mid-June to raise cash or find a buyer. But the bank's sale dragged out as bidders worked over how to value its sprawling and troubled condo assets.
 
Most of the company's top managers have departed over the past year, including Robert Glickman, the company's longtime chief executive whose father bought the small Minnesota lender in 1966. Mr. Glickman and his father, who last year held about half of the company's stock, have steadily dumped most of their shares for pennies on the dollar since leaving the company in April.
 
Corus shifted from a student loan and mortgage lender 10 years ago, aggressively ramping up its commercial real-estate lending, first on hotels and office buildings, and later on condos. Even as other lenders pulled back in 2006 and 2007 amid worries about a bubble, Corus plunged ahead.
 
Many investors questioned that strategy and made bets that a condo bubble would burst by shorting Corus's stock.
 
Minnesota regulators also shut Brickwell Community Bank, of Woodbury, Minnesota on Friday. CorTrust Bank, N.A., of Mitchell, South Dakota, agreed to assume all of the bank's deposits. The FDIC was appointed receiver.
 
Write to Nick Timiraos at nick.timiraos@wsj.com and Jessica Holzer at jessica.holzer@dowjones.com 
 
end.
 
OK lets start with yesterdays action:
 
Gold closed up by $9.60 to close at 1004.90.  Silver did not do as good as its  wealthier cousin closing up by 3 cents to 16.68.  At one point in the day, gold was hovering 1013.00 and silver was at 17.00.
The cartel came in a huff and a puff and got both metals to retreat in price a bit. Gold as promised closed at its second highest closing ever at 1004.90.
 
The Cot REPORT was released after the market closed and it is alarming.
 
I will give you the gold COT summary. 
 
For THE MENTAL MIDGETS of the gold world, of which there are legion, please explain the following re the latest gold Commitment of Traders report...

*The large specs increased their longs by 44,409 contracts and increased short by 4734.

*The commercials increased their longs by 688 contracts, yet increased their shorts by an astonishing 56,893 contracts.

*The small specs loaded the boat too by increasing longs by 15,117 contracts. They increased shorts by 1,203 contracts.


The silver COT was similar with the large specs piling into the metal and the commercials supplying the stuff.
 
I wrote this email to the Chairman of the CFTC, Mr Gensler and to Mr Bart Chilton Commissioner of the CFTC:
 
 
Dear Sirs:
 
Friday night saw the release of the COT report:
 

*The large specs increased their longs by 44,409 contracts and increased short by 4734.

*The commercials increased their longs by 688 contracts, yet increased their shorts by an astonishing 56,893 contracts.

*The small specs loaded the boat too by increasing longs by 15,117 contracts. They increased shorts by 1,203 contracts.

 

 

With Barrick Gold announcing to the world that they were exiting gold hedging this week, and also Anglo Gold  dramatically reducing their hedge book,

who on the planet is supplying the gold to these commercials or is this move by the commercials purely speculative?

I feel the CFTC should make a statement on this issue forthwith.

 

sincerely

Harvey B Organ.

 
end.
 
In short, we have seen a massive supplying of the two metals, silver and gold by the commercials.  Barrick, the loan hedger out there on Tuesday decided to get out of its hedges altogether.
 
There can be no other supplier of the gold than the usa government.  I have no idea who can back up the silver supply.
 
The COT report is as of Tuesday night, so we have Wednesday, Thursday and Friday and those days we saw wicked volume.
 
Ladies and Gentlemen:  these levels are unsustainable..something has to give.  Either the cartel cracks or there is going to be a wicked hit on both metals.
 
The regulators are asleep at the wheel. Stay tune on this one!
 
 
We are witnessing two potential defaults at the same time. 
 
1. Physical silver and gold default
2. Paper debt default  (bank failures etc)
 
The paper default looms large as more and more banks fail  (see Corus above)
 
It seems to be that the year end of Sept 30.09 has a big part in the usa scheme of things.
My bet is that many transactions will have to come onside on this date.
This may be the reason by the Fed extended the loan programs out there to Oct from Sept.
However the year end balances must be in place and that may play havoc to our bankers.
Word out there is that FASB will require off- balance sheet liabilities to become on- balance sheet liabilities and this worries our bankers greatly.
 
 
Here are some figures on yesterday's trading:
 

The yield on the 10 yr T note is 3.33%.

The dollar fell .13 to 76.68. The euro was down .0005 to 1.4577. The pound was up a bit to 1.6670. THE YEN soared to 90.65.

Crude oil was nailed, falling $2.65 cents per barrel to $69.79.

The CRB fell 3.36 to 251.82.

The DOW fell 22 to 9605 and the DOG lost 3 to 2081.
 
 
The CEF bullion vehicle rose to a 12..6% premium to NAV, a return to recent highs and suggestive of good bullion appetite.
 

end.
 
 
There are two striking changes in the past few days that is worth mentioning.  The first is the yen is strengtheneing against the dollar with gold rising.
This is a first in almost 4 years.
 
The second is the yield on the 10 yr treasuries are falling (bond prices rising) and gold and silver is rising.
If the bond prices are rising there seems to be no inflation fear.  So why is gold rising? Is it because of its safe haven status?
Then why is the stock market rising?
 
We are now witnessing a fundamental change in the market and with gold crossing the 1000 barrier it is certainly worth noting.
We also witnessed that Libor fell to .299,  The lower the libor the lower the demand for dollars as those dollars become plentiful in the marketplace.
It seems to me that the dollar is now the new dollar carry- trade replacing the yen- carry trade.  In other words, investors are borrowing dollars at cheap rates and buying assets in Europe and Asia and
of course buying gold and silver with those dollars.
 
OK lets go to economic news:
 
Import prices rose yesterday and this is a harbinger of inflation:
 
U.S. import prices in August spike as oil rises 

WASHINGTON, Sept 11 (Reuters) - U.S. import prices spiked 2 percent in August as the cost of oil rose, the Labor Department said on Friday, 

The increase, twice what analysts polled by Reuters had expected, was the fifth rise in the last six months. It followed a July drop of 0.7 percent. 

Excluding petroleum, import prices increased a much milder 0.4 percent in August after falling 0.3 percent in July. Petroleum prices were up 10.5 percent and fuel import costs 
were up 9.8 percent -- both the sixth increases in the past seven months. 

Overall import prices dropped 15 percent from August 2008, and non-petroleum imports were down 6.5 percent. 

Exports prices rose 0.7 percent in August, compared to falling 0.3 percent in July. Exports, excluding agricultural goods, rose 0.8 percent, the largest increase since July 2008.
 
 
end.
 
Confidence levels improved as the Fed continues to print money buying up all of the bonds they issued.  Everybody thinks everything is OK.  Just look at the stock market..it is rising!:
Here is the confidence report:
 

09:55 Univ. of Michigan Confidence preliminary Sep reading 70.2 vs. consensus 67.5
The final Aug reading was 65.7. 
* * * * *

US consumer sentiment rises in September - survey 

NEW YORK, Sept 11 (Reuters) - U.S. consumer sentiment rose in early September to the strongest in three months with growing expectations the economy will improve, a survey showed on Friday. 

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for September rose to 70.2, the highest since June, from 65.7 in August. This was above economists' median expectation of a reading of 67.3, according to a Reuters poll. 

The index of consumer expectations climbed to 69.2 in early September, up from 65.0 in August. 

"Confidence rebounded in early September as consumers increasingly expected the economy to improve despite their reluctant conclusion that their own financial situation would remain quite problematic for some time," the Reuters/University of Michigan Surveys of Consumers said in a statement. 

Within the survey, the 12-month economic outlook index rose to 79, the highest since September 2007, from 69 in August. The 1-year inflation expectation eased to 2.6, the lowest since March, and down from 2.8 in August. 

The index of consumer expectations rose to 69.2 in early September from 65.0 in August.

end.
 
But Main Street is not responding to this showering of paper money.  Inventory levels plummet as sales plummet.  Shopkeepers are just not replenishing inventory:
 


* * * * *

US wholesale inventories lowest in nearly 3 years 

WASHINGTON, Sept 11 (Reuters) - Inventories at U.S. wholesalers in July fell to their lowest level in nearly three years, declining for the 11th straight month after sharp drops in furniture and metals stocks, government data showed on Friday, 

The Commerce Department said total wholesale inventories dropped 1.4 percent to $387.2 billion, the lowest level since September 2006, after a revised 2.1 percent decline in June, previously reported as a 1.7 percent slump. 

Economists polled by Reuters had expected a 1 percent drop in July from June. Compared to the same period a year ago, inventories fell 12.8 percent. 

Companies have been slashing accumulated stockpiles of goods as the economy reels from the worst recession in seven decades. Furniture inventories fell 2.7 percent, while stocks of unsold metal declined 4.4 percent in July. 

Wholesale sales rose 0.5 percent in July, the biggest advance since June 2008, after rising by a revised 0.3 percent the previous month. June sales were previously reported as 0.4 percent higher. 

That left the inventory-to-sales ratio, a measure of how long it would take to sell stocks at the current sales pace, at 1.23 months' worth from June's 1.25 months.
 
 
end.
 
The usa posts a pretty bad deficit for the month at 111 billion even though 150 billion was predicted.  My bet:  they hid 50 billion in foreign accounts to keep this figure a little light:
 
U.S. posts $111.4 bln August budget deficit 

WASHINGTON, Sept 11 (Reuters) - The U.S. government posted a $111.40 billion budget deficit in August, slightly smaller than a year ago due largely to calendar shifts and matching a record period of 11 straight monthly deficits, the Treasury Department said on Friday. 

The August budget gap was well below the forecasts of analysts polled by Reuters, who predicted a $152.0 billion deficit for the month. The year-ago deficit was $111.91 billion.
 
 
end.
 
 
When you get the Chinese angry this is what you get:
 
 
China FX diversification makes sense: U.S. official

DALIAN, China (Reuters) - It makes sense for China to diversify its huge stockpile of foreign exchange reserves, the U.S. Treasury's economic and financial emissary to China said on Friday. 

China's forex reserves, the world's biggest stockpile, stood at $2.13 trillion at the end of June. 

China has expressed concerns in the past about the value of its holdings of U.S. Treasuries, as massive U.S. debt offerings pose the risk of eroding the value of dollar assets. 

"The general issue is that China has a huge amount of reserves and it makes some sense to diversify what you put these reserves (into)," David Dollar told a meeting of the World Economic Forum in the northeast Chinese city of Dalian. 

"It's healthy to have a wide and different type of reserve currencies," he said. 

The composition of China's foreign exchange reserves is a state secret. Analysts estimate that up to 70 percent of the stockpile is invested in dollar-denominated assets, mainly in U.S. government debt.
 
 
 
end.
 
Here is Bill Holters commentary on Geithner's and Bernanke's exit strategy:
 

Bill H:

Exit Strategy?

To all; the Fed (both Greenspan and Bernanke) have said for years that they cannot spot a bubble while in progress, they can only recognize a bubble once it has burst. Of course their response to any and all burst bubbles is to throw money at it and thus lay the foundation for the next one. If the Fed were a car, say a '71 Hemi Charger with close to 500 hp, the original brakes would still be in good shape because other than "tapping" on the brake they don't use them (except for Paul Volcker back in 1980-82). The brakes aren't ever used because the Fed politically can't use them. If the Fed were to really step on the brakes the "joy riding" populace would start screaming "go faster". Of course our elected politicians want to "go faster" because they always have another election just around the corner.

What I am getting at here is that the Fed has no chance at all of taking ANYTHING off the table that has already been served. The economy is literally on life support and if the Fed were to unplug anything, cardiac arrest would be almost immediate. The Fed can't stop absorbing crappy assets from busted balance sheets. They can't tighten up on money supply, they can't stop buying MBS nor Treasuries, they have only one pedal and that's the gas pedal.

The last 18 months of crisis has forced the Treasury to put their balance sheet on the line. As you know, $ trillions have been borrowed and the Fed is monetizing some (maybe alot more than "some") of this debt. Rather than allow rates to go where the market clearing level is, the Fed has been leaning on rates to keep them as low as possible. THEY have and are actively and knowingly creating and pumping the biggest and most stupid bubble of all time.

Stupid? Yes, stupid! Think about this for a moment, what investor with an IQ over 80 would buy a 10 year Treasury with a yield of 3.29% in a depreciating currency? How is it possible to actually gain purchasing power or even break even over 10 years by lending to a bankrupt entity that cannot "pay their bills" without borrowing more? How can this be a good investment if going into it you already know that bond prices are artificially high and yields low because of Fed purchases? WHO could be this stupid? Not foreigners anymore, the US public surely doesn't have the money and apparently neither Yale nor Harvard have the muscle to fund the Treasury bubble.

The only entity that has enough muscle to keep pumping the Treasury bubble is the Fed. BUT, the world has figured out that the Fed is no Atlas, rather they are more like a 96 year old Jack Lalanne (no offense meant to Mr. Lalanne!) who is about 50 years past his prime. This Treasury bubble will blow up in the Fed's face and take everything paper with it. Dollar bills, Treasuries, corp. debt, bank accounts, insurance policy balances etc.. What good is having $10,000,000 if a daily newspaper and a cup of coffee cost $20 million?

Think of it this way, if the Fed ends up as the last and only buyer of Treasuries, who will they "sell" to? There is not and cannot be an "exit strategy" once you begin to monetize. A topic of conversation this week was whether the Fed will extend their Treasury purchases past October. Can you guess what the answer is? Duh? They will do whatever, however, legal or not until they can't or until the ROW stops them (which the ROW is in the process of now).

$1,000 Gold tells you the world is voting no, it tells you the Treasury/Fed "strong Dollar" plan is not working. If they could get Gold below $200 per ounce they would but they can't. $1,000 Gold and 3% 10 year Treasury do not go hand in hand. One market is right and one is wrong, can you guess which one? The Wall Street saying has always been "don't bet against the Fed", this has been incorrect for the last 10 years. If you haven't yet placed your bet against the Fed, the betting windows are about to close, HURRY! Regards and have a nice weekend, Bill H.

P.S. If printing more Dollars is truly the answer to everything, why doesn't the Fed just call in all Dollars in circulation and then print more and keep them themselves? They could be masters of the Universe and have every morsel of wealth on the planet!

 

 
end.
 
 
I will conclude with the another commentary on the Barrick Hedge short.
I will first summarize what we know:
 
1. Barrick first announced a 3.0 million dollar stock sale which changed to a 4.1 million sale with the announcement of a silver deal with silver wheaton.
2. Barrick has a negative hedge book of 5.6 billion usa dollars  ie. it is underwater by 5.6 billion dollars usa.
3. Barrick has sold forward a total of 9.5 million oz of gold of which 3.0 million is fixed and 6.5 million is variable hedges.
4.The variable hedges can be paid out in cash at the option of Barrick.
 
So now I give you Adrian's point on the Barrick fiasco:
 

Bill,
As always with Barrick they use deception. In 2007 they were using language that sounded like they had eliminated all hedges as they announced the elimination of all corporate hedges…but in the fine print was all the project hedges. In this news release they have a headline of “Barrick Announces Plan to Eliminate Gold Hedges”. From the table below you can see this is not true as 2.7B$ of hedges remain.

It appears they will buyback or produce gold to eliminate the 3Mozs of gold hedges and pay-off in dollars 1B$ against the floating contracts because they say “The obligation under the Floating Contracts is economically similar to a fixed US dollar obligation. No activity in the gold market is required to settle the Floating Contracts”. So my question is why in the accounting summary table above is any of the 1.9B$ of the proceeds of the equity sale booked against the gold hedges?? Why not book 2.9 B$ against the floating contracts and leave the gold hedges to be produced into. In fact they have made a later news release that they are raining 4.5B$. This would allow the elimination of all the floating rate contracts so if these can be paid in dollars as they claim why not show these contracts will be eliminated and the gold hedges will be paid out of production which would represent about 3 months of production? Things are never what they seem with Barrick! In my view the reason for them putting 1.9B$ against the gold hedges is that they are being paid off in dollars…ie a default. The rest of the hedges are being partially paid off in dollars (seems that this is allowed under the contracts) and then they are going to raise more money to pay off the balance also in dollars. I conclude JPM is going to get mostly fiat dollars and not much gold!
Cheers
Adrian

 
end.
 
I believe that the huge build up in OI on the gold comex is Barrick's.  How they settle this is another story.
The silver buildup is still a mystery and needs to be solved.
 
 
On that note, I hope you all have a grand weekend.
Harvey.
 
 
 
 
 
 
 
 
 

Thursday, September 10, 2009

Sept 10.09 commentary.

Good evening Ladies and Gentlemen:
 
Gold closed unchanged today after a rollercoaster ride.  The cartel showed up for work early at 3 am and whacked gold down to 983.00 and from that point, it started its ascent
until finally going into the green. Only last minute antics by the fraudster bankers knocked gold down to even.
 
Silver had a better day.   It closed up by 21 cents to 16.65, a believe its yearly high.
 
The open interest on gold comex and silver comex continues to rise.  In gold the OI rose another 7115 contracts to 459000.  Todays today (released 24 hrs later) will also be huge.
The OI on silver rose by 1328 to 117800.
 
The gold comex rise I understand clearly.  The huge increase in the Dec OI comes from Barrick's purchases on the comex.  They are definitely taking delivery of around 8 million oz of gold or around 300 tonnes of gold.  The comex does not hold that quantity of metal.
The counterparty to the cash deal was JPMorgan and my bet is that they will be the bank that supplies the metal.  They will do so through their holding of GLD. The GLD tendered will be paper gold.
Thus the central banks will not get their gold back.
 
The silver OI is very intriguing.  The paper silver is supplied by JPMorgan.  The problem is that there is very little physical silver available.  The 117800 contracts represents around 585 million oz of silver.
The comex supposedly has 50 million oz available..a figure I doubt very much.
We may see a silver default shortly as this is unsustainable!
 
In the news today, we saw the last leg of a bond auction and results were praised throughout the land:
 

REUTERS U.S. TREASURIES EXTEND RALLY AFTER STRONG $12 BLN 30-YEAR BOND AUCTION

13:03 30-yr bond auction draws 4.238%, with 85.35% allotted at high
Bid/cover 2.92 vs. average of the last 9 auctions 2.37 
Indirect participation 46.5% vs. average 37.13% 
Following the results: 
2-yr 2/32 to 0.78% 
10-yr 28/32 to 3.37%  

US Treasury sells $12 bln in robust 30-year auction 

NEW YORK, Sept 10 (Reuters) - The U.S. government sold $12 billion worth of 30-year bonds in a surprisingly well-bid auction on Thursday, capping a strong week for debt sales that damped concerns over financing the burgeoning national debt. 

Bond auctions have been watched closely this year due to soaring government borrowing and became a particular focus after investors questioned the longevity of the United States' 
prized AAA credit rating back in May. 

Thursday's auction was a reopening of last month's issue of bonds maturing in August 2039. Demand was strong based on the bid-to-cover ratio of 2.92, above the average of 2.38 over the last four reopenings. 

In another sign of strong demand, the yield at the auction was below where it was trading in the when-issued market at the time of the sale, meaning dealers were not overly aggressive in bidding for lower prices and higher yields. 

Foreign and institutional investors showed decent appetite based on the indirect bidder category, which accounted for 46.4 percent of the sale, above the average of 40.9 percent in the last four reopenings. 

The auction follows strong results at three-year and 10-year auctions this week. Altogether, Treasury brought a total of $70 billion worth of bonds to market in the three 
auctions this week. 

-END-

The problem with this robuts 12 billion dollar auction was twofold:

1. the indirect bid of 47% was the Fed with the swap money overseas.

2. the direct bid was by the primary dealers who bought 53% of the deal and  immediately sold it back to the Fed with POMO money received early in the week. Such  transparency!!

 

So, in total defiance of the Chinese, these bozos continue to buy government debt with printed money even though they announced that this exercise will end in October

 

OK lets start with economic numbers for today:

The yield on the 10 yr T note fell to 3.35%.

The dollar FELL .20 to 76.85, another low for the recent move down.

The euro rose .0037 to 1.4589. The pound went up .0126 to 1.6659 and the yen gained .44 to 91.70.

Crude oil went up 63 cents to $71.94 per barrel.

The CRB lifted 1.96 to 255.18.

 

end.

 

As you can see the yield fell on the 10 yr as governments continue to buy these bonds and acts as a floor to the price. Bankers cannot lose if the Fed continues to buy this junk.

However you also saw the usa dollar fall to 76.85 as the world watches in horror as the world's reserve currency falls in value.

The low usa dollar helped crude, base metals and eventually gold and silver.

 

Today is Thursday so we get the jobless claims.  The report looked good:

 

08:30 Jobless claims for week ended 5-Sep 550K vs. consensus 560K
Prior week revised to 576K from 570K. Continuing claims for w/e 29-Aug 6.088M vs. consensus 6.200M. Prior week revised to 6.247M from 6.234M. 
* * * * *

US jobless claims fall, continued claims down 

WASHINGTON, Sept 10 (Reuters) - The number of U.S. workers filing new claims for jobless benefits fell last week to 550,000, according to a government report on Thursday that also showed the number of those collecting long-term aid tumbled. 

Analysts polled by Reuters had expected initial claims to drop to 560,000, after reaching 576,000 the prior week, which had previously been reported as 570,000. 

Continued claims fell to 6.088 million in the week ended 
Aug. 29, the latest for which the data is available, from 6.247 million the prior week. That was the lowest level since the week ended April 4.

-END-

Here is the real story:

Unadjusted Year Over Year: Labor Department Initial Jobless Claims Up 37%

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

·        Associated Press Headline And Lead: "New jobless claims fall more than expected to 550K... First-time claims for jobless benefits fell more than expected last week, evidence that companies are laying off fewer workers as the economy improves."

·        Labor Department News Release: click here.

·        Key Numbers: "The advance number of actual initial claims under state programs, unadjusted, totaled 460,516 in the week ending Sept. 5, an increase of 3,834 from the previous week. There were 336,733 initial claims in the comparable week in 2008."

·        My Spreadsheet (click Download 20090910yoy).

Here's my uneducated interpretation - Initial jobless claims got worse this week (despite the headline) both unadjusted week over week and especially year over year. In the previous recession, unadjusted year over year initial jobless claims first went negative in January of 2002 while the market bottom was nine months later in September 2002. At +37%, this economy has a long way to go before year-over-year goes negative. Initial jobless claims is a leading indicator and I think it indicates continued economic contraction.

Of course, the AP does whatever it can to put a positive spin on this sensitive statistic and leads with a conclusion that is the exact opposite of mine.

MontyHigh, http://www.worldofwallstreet.us/

end.

Here is a figure that continues to throw cold water on the "green shoots" theory of a recovery...foreclosures continue to set records:

 

00:03 US foreclosures rose 18% y/y in August according to RealtyTrac 
The online marketplace releases a report showing filings totaled 358K in August; the figure was a small m/m decrease. Percentagewise by state, Nevada, Florida, and California had the highest rates for the month. By totals, California,Florida, and Michigan had the most. 
* * * * *
 

US foreclosures near record, peak in late '10-report 

NEW YORK, Sept 10 (Reuters) - U.S. mortgage foreclosure filings in August hovered near July's record high despite broad efforts to keep borrowers in their homes and will probably rise for another year, according to a report released on Thursday. 

Filings -- including notices of default, auction and bank repossession -- dipped 1 percent last month from July's all-time high and were up 18 percent in August from the same 
month a year earlier, real estate data firm RealtyTrac said. 

"The pipeline of early stage foreclosures and delinquent loans is still probably going to overwhelm the system's ability to quickly modify" terms so struggling homeowners can make their monthly mortgage payments, said Rick Sharga, senior vice president at the Irvine, California-based company. 

One in every 357 U.S. households with loans got a foreclosure filing in August. 

Though lenders are moving in the right direction, Sharga said, RealtyTrac is revising up its estimate for filings this year and now expects a more prolonged foreclosure crisis.

end.

 

This next number is interesting as it shows that the deficit increased last month to 32 billion dollars from 27 billion.  Imports increased more than increasing exports which is a sign of growth.

However the number includes the huge auto parts sales and this may have impacted the number.  Gold also showed an increase and that gold is probably foreign gold leaving usa shorts for back home. Remember that these doorknobs include in their export data gold foreign sales.

 

Here is the report:

08:30 Jul trade balance ($32.0B) vs. consensus ($27.3B)
Jun figure revised to ($27.5B) from ($27.0B). 
* * * * *

U.S. July trade gap widens on record import surge

WASHINGTON, Sept 10 (Reuters) - The U.S. trade deficit widened the most in more than 10 years in July as imports grew a record 4.7 percent on resurgent U.S. demand for foreign cars, consumer goods and oil, a government report showed on Thursday.

The trade gap expanded 16.3 percent in July to $32.0 billion, the biggest month-to-month increase since February 1999.Wall Street analyst had expected the trade deficit to be little changed from June, which the Commerce Department revised to $27.5 billion from its original estimate of $27.0 billion U.S. imports grew for the second consecutive month to $159.6 billion, led by a $2.4 billion increase in imports of cars and car parts and a $1.7 billion increase in consumer goods such as medical drugs, toys, clothing and televisions.

Auto and auto parts imports were the highest since December and may have reflected dealers building up inventory in anticipation of Congress' "cash for clunkers" program to encourage motorists to exchange old gas guzzlers for new more fuel-efficient vehicles.

A sixth consecutive monthly rise in the average price of imported oil to $62.48 per barrel also helped widen the trade gap. Overall imports of petroleum products were the highest since December. The trade deficit with China grew 10.8 percent in July, as imports from the Asian manufacturing giant hit their highest level since November.

The July trade gap remained far below the record of $64.9 billion set in July 2008, just before the global financial crisis took a huge bite out of international trade.

U.S. exports also increased for the second consecutive month in July to $127.6 billion, a rise of 2.2 percent from June.

Goods exports had their best showing since December, led by increases for autos and auto parts and capital goods. U.S.exports to Mexico were the highest since November 2008, although shipments to the European Union were the lowest since July 2006.

end.

 

Commercial paper was now risen in the last 4 months and this is very encouraging.

US commercial paper outstanding rises a 4th wk-Fed 

NEW YORK, Sept 10 (Reuters) - The U.S. commercial paper market expanded for a fourth straight week for the first time since December, adding to signs of an economic rebound as the global financial crisis continued to abate, Federal Reserve data showed on Thursday.

For the week ended Sept. 9, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, rose by $11.3 billion to $1.174 
trillion outstanding, up from $1.162 trillion the previous week.

Asset-backed commercial paper outstanding rose for the third consecutive week, up by $6.2 billion after rising by $19.5 billion the previous week. Unsecured financial issuance outstanding rose by $6.2 billion after falling by $11.3 billion the previous week.

-END-

 

The libor 3 month rate continues to fall.  Today it is .295% per annum.  You can look at libor as a proxy for demand of usa dollars.

A higher libor means  high demand and a low libor means low demand for dollars.

Yet the consumer is not borrowing and the banks are not lending.  The dollars however are plentiful. The reserves at the Fed are at record levels.

 

Also it looks like the Euro and British extended the swap arrangements initiated in March.09 wth the usa.   We are not sure but it looks like there was an extention of 1 month to correspond to the Fed's 1 month extention in many of their liquidity programs.  Maybe this is why libor has been falling of late.

 

Just when everything was getting to look pretty rosy for our banks, the nerve of Moody's to post this:

08:58 Moody's reiterates negative outlook for U.S. banks
Moody's believes asset quality troubles will compel U.S. banks to make additional provisions in 2009 and 2010, which will make many of them unprofitable for extended periods and apply stress to capital levels. Moody's does "not believe asset quality deterioration for the US banking industry has reached its peak, and we therefore anticipate multiple quarters of losses for a large number of rated banks." 

* * * * *

President Obama did not like this announcement:

 

U.S. poverty rate hits 11-year high as recession bites 

WASHINGTON (Reuters) - The U.S. poverty rate hit its highest level in 11 years in 2008 as the worst recession since the Great Depression threw millions of Americans out of work, a government report showed on Thursday. 

The Census Bureau said the poverty rate rose to 13.2 percent in 2008, the highest level since 1997, from 12.5 percent in 2007. About 39.8 million Americans were living in poverty, up from 37.3 million in 2007. 

The government defines poverty as an annual income of $22,025 for a family of four, $17,163 for a family of three and $14,051 for a family of two. 

Real median household income fell 3.6 percent, the biggest annual drop since 1991, to $50,303 in 2008. 

"This breaks a string of three years of annual income increases and coincides with the recession that started in December 2007," said David Johnson, head of Housing and Household Economic Statistics Division. 

The longest and deepest recession in 70 years has been marked by rising unemployment as companies aggressively cut payrolls to cope with slumping demand.

 

end

If anyone of you believe this, I have got a great farm to sell in the Sahara desert;

 

Geithner Says Government Moving to Reduce Its Role in Markets

Sept. 10 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner said the government is moving to withdraw some of its support for financial markets and cautioned that the recovery will have “more than the usual ups and downs.”

“As we enter this new phase we must begin winding down some of the extraordinary support we put in place for the financial system,” Geithner said in testimony to the Congressional Oversight Panel that monitors the $700 billion financial-rescue program. “We are now in a position to evolve our strategy as we move from crisis response to recovery, from rescuing the economy to repairing and rebuilding the foundation for future growth.”…

 

end.

Here is Bill Holter's commentary on Barrick and other events of today:

 

Bill H:

ROW vs. U.S./UK + the Barrick factor

To all; we are VERY close now to the ROW (rest of the world) imposing their collective will on the Anglo banking system. It started with Russia and China expressing their displeasure with Dollar hegemony. Then France piped in and Angela Merkel of Germany made some disparaging Dollar remarks. Next came Mr. Trichet of the EU, he wants to begin to normalize rates and withdraw stimulus (GASP!). Brazil then cut a trade deal with China to be settled in their local currencies, NOT Dollars. The "just desserts" for this cake are topped off by Japan's new government and the UN calling for a "different" reserve currency.

The above list pretty much represents the ROW. If they decide on their own to transact business or underpin their currencies with something other than the Dollar what can the U.S. do? Currently the two most upside down and bankrupt systems in the world are the U.S. and the UK, why is this? Could it be because this is where derivatives were born, nurtured and raised, and now dying? Could it be because these two entities were the ringleaders of suppressing the price of Gold and rigging every market known to man? Maybe because their industrial bases have been decimated and they no longer produce anything that the ROW desires to purchase? Gargantuan deficits? Exploded money supplies?

The point is, the ROW (and it is now truly the ROW) for the reasons above amongst many others wants to change the rules of the game. The "other side" now has too many players for the U.S./UK to appease. If it were only one or two disgruntled players then some form of "bribe for silence" could work (I'm sure this has already been done for years). The ROW is a "gang" that is growing in numbers and can soon be called an "unruly mob" once some of the smaller and less significant nations join their ranks. As for the Dollar, all I can say is "IT'S OVER!".

On Tuesday, Barrick Gold "shocked" us with the confession that they really couldn't "roll" their hedges forward forever. (Whodathunkit?!) The loss of $5.6 billion either made their creditors uneasy or the rocket scientists on their board of directors figured out that $1,000 Gold will soon be the "floor" and "it doesn't get any better than this" if you're short. Maybe their "Daddy" called? Maybe they got "the call" that the Gold is gone and the jig, I mean rig, is up?

It doesn't matter why they are closing their hedges, just that they are and of course "how". Their $5.6 billion loss (and only the loss) equates to about 175 tones or 5.6 million Gold ounces at $1,000 per ounce. But we know that these hedges for the most part were put on in the "$300's" so the actual amount of metal hedged was probably something like 250 tons or 8 million ounces. This metal cannot be delivered by Barrick because their metal is still in the ground. They surely can't go out and purchase this amount because on the margin it does not exist and is not for sale in this large a quantity. This will surely be a "cash settlement" or offset by more OTC derivatives. If I were king CEO of Barrick, I would just go out and buy shares of GLD since it is "good" (how laughable!) delivery on the COMEX and since GLD probably doesn't even buy physical metal, the tight physical market won't be affected adversely. How funny that "adversely" would mean rising prices!

So here is the #1,2, or 3 Gold producer in the world over the last 10 years who lost their butt's during the 2nd biggest (so far) Gold bull market in percentage terms in $ history. Good thing these rocket scientists aren't employed by NASA, the Moon landing would never have happened but "Journey to the center of the Earth" wouldn't be fiction. In any case, this8 million ounces has already been sold years ago and absorbed into the market. When Gold was sold in the past, roughly 70% would end up in the form of jewelry so most of it isn't even in deliverable form. So basically, "poof" it's gone. This 8 million ounces will not be delivered, it will not change hands (it already has). Hedging is exactly what we knew it would be in a rising market.

Central banks are now turning into buyers, global Gold production is declining and expenditures for exploration have been paltry for years. China is prodding their 1.6 billion population to buy physical Gold and Silver. COMEX inventory may be stuffed with GLD shares so a fire at their depositories could be disastrous, and who knows for sure who really has what? It will all come down to physical supply and demand. We know that buyers today are wising up and requesting delivery of the real deal and at the same time we are finding out that supply that once upon a time was the real deal, is now of paper origin that foreigners will ultimately balk at.

If you can't see every piece in this rigged puzzle coming together now, you won't until it's too late. "Too late" is almost here so if you haven't figured it out yet you better hurry. Regards, Bill H.

end

We all know that silver is a huge conductor of electricity.  Now they have discovered a new use for gold. The conductivity of electricity was increased 100,000 x.

This technology if it could be on a commercial basis would be earth-shattering!!:

Re: Some Good News - Gold Solution for Enhancing Nanocrystal Electrical Conductance

Hello Bill, 
I work at Berkeley Lab part time (Lawrence Berkeley National Lab - in Berkeley, CA , employs about 5,500 researchers and staffers) and the following was the key article in today's daily blurb.

"The key to our success is the fabrication of gold electrical contacts on the ends of cadmium-selenide rods via direct solution phase-growth of the gold tips,” says Paul Alivisatos, interim-Director of Berkeley Lab, who led this research."

As the article says, Alivasatos is the Interim Director (Steve Chu went to head up DOE) and if Alivasatos says the GOLD electrical contacts were the key to the success, I suspect that's the reason. They claim the " the electrical conductivity of nanorod crystals of the semiconductor cadmium-selenide was increased 100,000 times." At this point, I have no idea of market demand but it's an exciting discovery.

end.

 

I reported to you the Silver Wheaton purchase of silver from the Pascua Lama project in Chile-Argentina.  I have pointed out to you on many occasions why I feel this project will not fly due to the location of the mine under a glacier.  Barrick has still not solved this problem.

This glacier feeds the needed water to the farmers in Chile.  If they move the glacier then the land will become a desert.  Here are the stories on this:

Hey, Bill and Chris: 
I know you've both covered this very well but please check this story out for some likely prevarication. http://www.financialpost.com/news-sectors/mining/story.html?id=1973785

"In return, Silver Wheaton gets the right to buy 25% of the silver production from Pascua at very favourable prices -- US$3.90 an ounce or less. Silver closed yesterday at US$16.51. It can then resell the silver itself. It also has the rights to silver from three of Barrick's other mines until Pascua is in production (likely in 2013)."

Is this 25% silver production + royalty rate being paid on a "stolen" mine? Is a certain CEO smoking crack? Where is Pascua's true owner? And what has happened to him? Has a secret "settlement" been reached? Because if not... Pascua Lama will open when Dante's frozen 9th Circle of Hell melts which means NEVER. Canadian legal opinions concerning ownership are one thing. But legal Title as recognized in Chile by the Bureau of Mines is quite another! Good luck with your ponzi scheme, goons. You're going to need substantially more than rigged legal opinions and rigged precious metals prices to crawl out from under this thing. Keep on rolling those new silver hedges forward 3 years times 5 like you did the last time with the golds and the coppers, huh?

"...(John Ing) added that the main reason it is such a positive is that it greatly improves the economics of Barrick's Pascua-Lama project, which had hedges assigned to it. Without the hedges, it is one of the most lucrative greenfield gold projects in the world. "[Hedges] really made Pascua-Lama look iffy," he said.

Barrick made another major commitment to developing Pascua-Lama yesterday by striking a deal to receive US$625-million in project financing from Silver Wheaton Corp.

In a statement yesterday, Mr. Regent noted that the hedge book was a "particular concern" to shareholders and obscured many of the positive developments in the company.

"As a result of today's decision, we have addressed that concern and maintained our financial flexibility," he said.

They've done absolutely nothing but bought themselves some more time for chicanery and obfuscation. Sad but true. Does Prime Minister Harper know? Did Former Prime Ministers Mulroney and Martin know? Affirmative. And why didn't they stop it when informed? Is there corruption at the highest levels in the land? Yes. And where is Canada's missing Royal Mint gold and precious metals, Mr. Harper? Do you know where it is Mssrs. Ignatieff, Layton, Duceppe and Ms. May? And what will any of YOU do about this if elected come November? Absolutely nothing, total silence.

And what will the RCMP do? Send their guys for some accountability training in Spooktown,Arizona instead of investigating! My God gentlemen. Do your jobs RIGHT once and for all and investigate all of this independently of your Ottawa and Toronto political masters or risk being permanently disbanded!

http://www.nationalpost.com/news/story.html?id=1973714

"As part of an overhaul intended to restore trust in the RCMP, the force is planning to spend nearly a quarter of a million dollars to send three of its executives to Arizona for "personal transformation" and "accountability" training."

No one cares. I'm done with this mess. Shear the sheeple. Cue the crickets...

GO GATA! 
Mark

Hi Bill,
In all the hoopla today over Barrick defaulting on its gold hedges, and now raising and using investor money to cover their foolishness something was missing.

Somewhere in South American Barrick bought a piece of land for $10 that was rich in gold five or so years ago. Well, that went to court and the guy they bamboozeled got a lot more bucks later. But there was a problem with the mine area. It was under a glacier for starters, and the water from the glacier provided most of the moisture for the land in the valley below. Irrigation, drinking water, homes for fish, etc. 

Now when Barrick set this up the forward sold hedges were somewhere in the area of $4 billion bucks to finance the project. You have covered this in the past. So here we are today with Barrick going to spend $1.9 Billion to cover hedges. What happened to the $4billion that was never discussed in the past. The $4 billion that was kept off the balance sheets.

The glacial mine will never be developed due to common sense and the crazy environmentalists. So Barrick will still end up being hedged? Yes, no, or do I need a strong drink and some rest.

Awaiting your response.
Roger

 

 

end

 

Now we see that Fox news has appealed the lower courts decision on the Fed disclosures on TARP money.  Now we will have two cases in the appeals court:

Fox News appeals ruling for U.S. Fed over bailout 
Wed Sep 9, 2009 7:05pm EDT 
Friday, 28 Aug 2009 11:46pm EDT

* Different judge ruled for Bloomberg News in similar case

NEW YORK, Sept 9 (Reuters) – Fox News Network LLC on Wednesday appealed a U.S. judge’s decision not to force the U.S. Federal Reserve to reveal the names of participants in its emergency lending programs.

The news network, part of Rupert Murdoch’s News Corp. (NWSA.O) filed with the 2nd U.S. Circuit Court of Appeals seeking to over turn a July 30 ruling by U.S. District Judge Hellerstein that denied the network’s Freedom of Information Act (FOIA) request of the U.S. central bank.

In a similar case in late August, the chief district judge of the same court – the U.S. Court for the Southern District of New York – ruled for Bloomberg News and ordered the Fed to release the names and amounts

Chief District Judge Loretta Preska ruled in favor of Bloomberg News and against the Fed saying the central bank had to release the names of the banks that participated in its emergency lending programs.

The Fed appealed Preska’s ruling and now both cases are before the 2d Circuit.

More…

end.

I wonder why?

Bankers Want G-20 to Rein in FASB, IASB 
WASHINGTON, D.C.  
(SEPTEMBER 10, 2009)

The American Bankers Association has written to Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke asking them to raise accounting issues at the upcoming G-20 meeting in Pittsburgh in order to curb efforts by standard-setters to expand mark-to-market accounting to loans and debt instruments.

In the letter, ABA president and CEO Edward Yingling claimed that the mark-to-market accounting changes proposed by the Financial Accounting Standards Board and the International Accounting Standards Board are at odds with the changes recommended by the G-20 in a statement last week.

“Most experts, including banking leaders, believe that repairs are needed to the accounting model, particularly in the area of provisioning for loan losses,” wrote Yingling. However, he argued that the FASB and IASB proposals go too far and “would undermine the G-20’s efforts to strengthen the financial system.”

The FASB and the IASB are proposing to increase the use of mark-to-market measurements in accounting for loans and debt securities. The IASB is scheduled to finalize its rules by the end of 2009, and FASB is scheduled to issue final rules in the second half of 2010.

Yingling argued that an expansion of mark-to-market accounting would lead to reduced lending, changes in the product types available to customers, an increased cost of capital to the banking system, and higher cost of credit to borrowers.

More…

OK lets get the Chinese more angry:

This could be the left hand not knowing what the right hand is doing. It is a tad stupid when you might wish some life to remain in the US dollar.

China condemns US tariffs on steel pipes

BEIJING — China on Thursday condemned a US decision to slap tariffs on steel pipes from the mainland, as US President Barack Obama mulled whether to also curb tire imports from the Asian giant.

The twin disputes are a litmus test for Obama’s trade policy with Beijing, and are coming to the forefront ahead of his highly anticipated first presidential visit to China set for November.

In July, Obama laid out his vision of "cooperation, not confrontation" between Washington and Beijing, saying the relationship would "shape the 21st century" — but the thorny trade issues could throw a spanner in the works.

The US Commerce Department said Wednesday it had made a preliminary decision to impose duties of as much as 31 percent on Chinese carbon or alloy tubular steel products used in oil and gas wells, following claims they were backed by unfair subsidies.

That announcement drew a quick and angry response from Beijing.

More…

and

U.S. Says China Violated Trade Law 
Tariffs Imposed as Subsidies to Pipe Makers Called Illegal 
By Peter Whoriskey 
Washington Post Staff Writer 
Thursday, September 10, 2009

In one of the largest U.S.-China trade cases ever, the U.S. Commerce Department has issued a preliminary finding that Chinese steel pipe producers have received government subsidies in violation of trade law, helping them overrun the competition.

The volume of steel pipes imported from China more than tripled between 2006 and 2008, rising from $632 million to $2.6 billion, according to the Commerce Department.

The subsidies from the Chinese government allowed the firms to overwhelm their U.S. rivals, according to six U.S. companies that filed the complaint along with the United Steelworkers union. The companies alleged that their Chinese rivals received discounts on raw materials and loans from government-owned firms.

To even the playing field, the Commerce Department has ordered that tariffs ranging from an estimated 11 percent to 31 percent be imposed on the steel pipes from China.

The steel pipes at issue in the case are those used primarily by the oil and gas industry. They are known as "oil country tubular goods." By dollar volume of imports in the industry, the case represents the largest U.S.-China trade case ever, attorneys said.

More…

The state of Ohio has some public pension problems:

Pension fund failure of payment restructuring will have a major impact on the Social Order and therefore CONFIDENCE.

State employees face changes to pensions: System is financially unsustainable 
By Marc Kovac

COLUMBUS — State lawmakers will have to decide whether to increase retirement ages, require greater contributions from public employees and employers and/or decrease cost-of-living adjustments for pension payments.

That’s after a state panel heard recommendations Wednesday from Ohio’s five public employee retirement systems for dealing with the economic downturn.

The groups, representing police officers and firefighters, teachers and school employees and other public workers, have been hit hard by stock market declines. The separate boards that oversee each have outlined recommendations for reducing costs and ensuring adequate funds to cover retiree obligations in years to come.

“These are not easy decisions that we’re going to be dealing with,” said Rep. Todd Book, a Democrat from McDermott, who serves as chairman of the Ohio Retirement Study Council. “… We cannot invest our way out of this situation.”

The Ohio Retirement Study Council, which includes six lawmakers and three citizen voting members appointed by the governor, heard the recommendations during a meeting that lasted several hours Wednesday at the Statehouse.

More…

end.

That is all the stories for today.

Tomorrow, we should break through the 1000 dollar mark in gold and stay there.  Today cartel members dug their heels into the trenches only to see the gleeming eyeballs on their enemy approaching.

Tommorrow night we will probably see more bank failures which I will report on in my Saturday report.

The big news about Barrick yesterday is extremely important.  These guys are well tuned to the insider banks.  They were told to cover quickly because of a possible financial meltdown.

It looks like all eyes will be pointing towards October as the usa tries to pull its liquidity and reverse swaps. If they do they and the usa dollar will be toast.

I will speak to you on Saturday morning.
Harvey.



 

 


 

 

Search This Blog

Loading...