Saturday, October 3, 2009

Oct 3.09 commentary

Good morning to all:
Yesterday gold closed up by 3.40 to 1003.20.  Silver however was held down losing 19 cents to 16.21
The gold OI basis Thursday fell by a large 12888 as some weaker held longs pitched their belongings out the window.
The silver OI however hardly moved down by only 958 contracts to 126700. The silver shorts are besides themselves!
Yesterday of course was release of the jobs report and it was horrendous:

08:30 Sep average hourly earnings 0.1% vs. consensus 0.2%; average weekly hours 33.0 vs. consensus 33.1
Aug average hourly earnings revised to 0.4% from 0.3%; average weekly hours unrevised from 33.1. 
* * * * *

U.S. Sept non-farm payrolls plunge 263,000 

WASHINGTON (Reuters) - U.S. employers cut a deeper-than-expected 263,000 
jobs in September, lifting the unemployment rate to 9.8 percent, according to a government report on Friday that fueled fears the weak labor market could undermine economic recovery. 

The Labor Department said the unemployment rate was the highest since June 1983 and payrolls had now dropped for 21 consecutive months. 

Analysts polled by Reuters had expected non-farm payrolls to drop 180,000 in September and the unemployment rate to rise to 9.8 percent from 9.7 percent the prior month. The poll was conducted before reports, including regional manufacturing surveys, showed some deterioration in employment measures. 

The government revised job losses for July and August to show 13,000 more jobs lost than previously reported. Preliminary annual benchmark revisions, released together with September's employment report showed that total non-farm payroll employment for March would have to be revised down about 824,000. 

Stubbornly high unemployment is viewed as the missing link in the economy's recovery from its worst recession in 70 years. The economy is believed to have started growing in the third quarter. 

Since the start of the recession in December 2007, the number of unemployed people has risen by 7.6 million to 15.1 million, the department said. While the decline in payrolls has moderated from early this year, companies are still not hiring on a wide scale, likely waiting for a signal that the economic recovery is sustainable. 

Manufacturing employment fell by 51,000 in September, while construction industries payrolls dropped. The service-providing sector cut 147,000 workers in September, while goods-producing industries shed 116,000 positions. 

Education and health services added a mere 3,000 jobs, while government employment fell 53,000.


08:36 Follow-up: nonfarm payrolls (263K) in September
Most of the deterioration in September was seen in two categories, government and retail trade. Government payrolls fell 53K while retail fell 39K, both declines were significantly larger than seen in August. Total private payrolls have been quite consistent over the past three months, falling 210K in Sep after declines of 182K and 246K in August and July. While the pace of deterioration in the labor market is much improved from early 2009, it continues to fall short of a recovery. Though the labor market is well known to be a lagging indicator, the lack of a more clear trend of improvement over the past several months will be seen by many as disappointing, albeit consistent with the stubbornly high level of jobless claims that preceded the report. 
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Please note the miss by everybody on the expected number.  Most thought the loss will be around 150-180,000.  Now the number turns out to 263000.

We are getting the plug number i.e. the B/D addition.  It is a big positive number but it was not released in the body of the announcement.

However the Bureau stated that they must increase the loss of jobs by a huge 824000 for the month of March 09.  That should increase the unemployment level U3 past 10%

On top of that weekly hours worked declined to 33.0 hours from 33.1.  That is also comparable to a significant job loss. Note the big loss in manufacturing (53000).


This is John Williams stats revised once the jobs number was released:

Jim Sinclair’s Commentary

To know what is really happening in the US economy you need to see the real statistics.

They will guide you both ways. It is by subscription, and in my opinion worth it. There is much more to this than just one liners below.

- BLS Revision Nightmare: March 2009 Payrolls Overstated by 824,000  
- Birth-Death Model Falsely Boosting Jobs Reporting in Recession Environment  
- Monthly Jobs Loss of 263,000 (Payroll Survey) versus Monthly Employment Decline of 710,000 (Household Survey)  
- September Unemployment Rates: U.3 = 9.8%, U.6 = 17.0%, SGS = 21.4%


We then at 10 o'clock got these two news reports:




10:00 Aug Factory Orders (0.8%) vs. consensus 0.0%
Jul Factory Orders revised to 1.4% from 1.3%.

* * * * *

U.S. factory orders post first drop since March 

WASHINGTON, Oct 2 (Reuters) - New orders received by U.S. factories posted their first drop in five months in August, government data showed on Friday, going against Wall Street expectations that they would rise. 

Orders fell 0.8 percent after rising 1.4 percent in July, which was originally reported as a 1.3 percent increase, according to the Commerce Department. Analysts polled by 
Reuters were expecting them to gain by 0.3 percent. The drop was the first since March, when they fell 1.9 percent. 

Factory orders were also down when compared to August 2008, by 22.5 percent. 

Unfilled orders dropped 0.4 percent in August. They have now fallen for 11 months in a row, which is the longest streak of consecutive monthly decreases on records dating to 1992, the Commerce Department said. 

Inventories fell 0.8 percent. They have decreased for 12 months in a row, the longest streak since 2002. 

Durable goods orders had their steepest drop, of 2.6 percent, since January, when they fell 7.8 percent. Orders of durable goods -- big ticket items meant to last -- were originally reported as declining 2.4 percent in August.






U.S. September auto sales plunge; GM, Chrysler hit hard 

DETROIT (Reuters) - U.S. auto sales tumbled by 23 percent in September as showrooms emptied after the government-funded boom from the "cash for clunkers" program, with General Motors Coand Chrysler hardest-hit. 

Sales for General Motors Co and Chrysler -- the two U.S. automakers struggling to regain momentum after emerging from bankruptcy -- dropped by 45 percent and 42 percent, respectively. 

Ford -- the only U.S. automaker to have avoided bankruptcy -- managed to hold its sales decline to 5 percent from a year earlier despite low inventories and reduced incentives for car shoppers. 

Automakers had braced for a sharp pullback in September after the clunkers program and taxpayer-funded credits of up to $4,500 drove sales sharply higher the month before. 

The overall result was in line with those forecasts as industry-wide U.S. auto sales dropped 41 percent from August, according to Autodata Corp. 

On the annualized basis tracked by analysts, industry-wide U.S. auto sales dropped to 9.2 million vehicles in September, the weakest sales rate since April. 

In a reversal of fortune that underscores how deep the decline in U.S. auto sales has cut over the four-year-long slump, China's overall vehicle sales for September were almost twice as large as the industry-wide U.S. tally, according to an estimate provided by GM…






The jobs report always sees a corresponding hit on gold and gold shares.  It is a rare day if gold rises on a jobs report whether good or bad.

I believe that gold advanced on only 1 day three years ago on a good jobs report.


So lets see what happened to gold and silver's trading yesterday.

Here is a Net Dania graph of the gold trading throughout the day




The PM Fix came in at $1003.50, which tells us the physical buyers were active securing supply.


Please note that the release of the jobs number comes at 8:30.  Gold fell in three successive whacks down from 998.00 to 985.00 in a matter of 3 minutes.

The volume on the comex was an extimated 90,000 by then.  They are off all the time by 15-20% so you can bet the farm that central authorities supplied over 100,000 by 9 o'clock

or 10 million oz of paper gold.  Their goal was to counter the lousy jobs number to make it feel like everything is OK.

However something strange occurred.  A powerful entity absorbed the entire onslaught catching the manipulators totally off-guard. This powerful force then succeeded in pushing the price

again past the 1000 dollar mark.  Estimated volume at day end for the gold comex was 140000 and all went into the Dec 09 contract. Final volume will then be probably 160,000 with no switches.

In other words, we had a powerful outside day reversal of some magnitude.  Generally these events are rare but we are seeing this occur all too frequently.

However the speed of the huge drop in 3 minutes and the large rebound in 60 minutes to say the least is unprecedented!!


I can now report officially to you that Mainland China has been talking to GATA for the past year or so.  There have been extensive hour long conversations on how the cartel are manipulating the gold market.  One of the areas reported to them is the constant bombardment of gold during the release of the jobs report.

I have remarked to you on several occasions that trading in gold in different in the past few months.  The hits on gold and silver are shorter in duration and quickly the metal recovers.

The cartel do not wish to be short for any period.

Yesterday, the gold cartel for the first time, knew what they were up against.  The cartel represents unlimited paper gold supplied.  The regulators of course are still taking their extended holiday whereby they overlook the cartel's huge continued short position with no identifable gold on their books.

However they now face an enemy wih unlimited paper dollars to buy these paper gold products and attempt to turn whatever they can into physical gold.  This is what we are seeing.


After the market closed, they released the Committment of Traders report and it was as I suspected in that the commercials are feeling the heat and are getting out of the game.  ie.

the weaker cartel members.  Here is the report:

The gold Commitment of Traders report revealed the commercials were covering their shorts on the breaks as spec traders pitched their longs, as reported in this column…

*The large specs reduced longs by 12,931 contracts and reduced shorts by 7,568.

*The commercials increased longs by 4585 contracts and reduced shorts by 7,791.

*The small specs were flushed out on setbacks as they decreased longs by 6,765 contractss and increased shorts by 248.




These figures are up to last Tuesday, Sept  29.09.  I can assure you that more commercials continued to cover by Friday.  We will see the results next week.


Here is Bill Murphy's account on the gold trading yesterday:

Naturally, as is almost ALWAYS the case, The Gold Cartel made their move, panicking other spec longs in the process. They pummeled gold all the way down to $985.40, but A Funny Thing Happened On The Way To The Forum again. The new buyers were waiting for The Gold Cartel to do their thing and they pounced all over the suddenly cheap gold. The dollar, which upticked for a bit, began to weaken, which forced the new buyers, perhaps the Chinese, to BID UP in order to get their buy orders filled. Gold began to fly, making it up to $1007.40 when a panic-stricken Gold Cartel put the cap on, as gold was on its way to a spectacular outside day, key reversal to the upside, which would engender a good deal of excitement. While the cabal forces would suffer a defeat for the day, only those in the GATA camp will appreciate what a true victory today was. The bums wanted the gold price to tank and they didn’t get it. The weakness in silver was further evidence of their intentions. Unlike gold, it couldn’t get out of its own way as the day wore on. As we have witnessed ad nauseam, when The Gold Cartel is struggling with gold, they go after the easier to manipulate silver, which they did … and is why silver ended lower despite a weaker dollar.

While gold was not allowed to fly on the upside today, the fact it could rally from so much lower and finish higher (and above the psychologically significant $1,000 level) is a big deal … STRONGLY suggesting there is a good shot both gold and silver will do so VERY soon.




Here are some numbers from yesterday's trading:


The Dow closed down by 21 points as Larry Summers and company again juiced the markets. It was down by 100 points early on the jobs report.

The yield on the 10 yr T note tanked to 3.10% before reversing course and ending the day at 3.23%.

The dollar fell .15 to 77.01. The euro rose .0060 to 1.4573. The puound and yen were little changed.

Crude oil dropped 87 cents per barrel to $69.95.

The CRB fell 2.49 to 253.06.







Please note the huge fall in yield on the 10 year note to 3.10%  This is very ominous in that it signfies huge financial failures out there.

Actually there were no bank failures last night even though there was a report that a few banks had non performing loans in the 25-50%

I guess that the FDIC could not close on these banks because they could not gurantee depositors yet.  They have not raised sufficient moneys

from other banks.  It is interesting that the FDIC are loathe to loan from treasury knowing full well that they cannot return the money.

However there was a big failure yesterday:


Penn Treaty Pushed Toward Biggest Insurer Failure Since 2004 

Share | Email | Print | A A A


By Andrew Frye and Jamie McGee

Oct. 3 (Bloomberg) -- Penn Treaty Network American Insurance Co., the provider of long-term care coverage for 120,000 customers, was pushed by a Pennsylvania regulator toward liquidation in what may be the biggest forced breakup of an insurer in the U.S. in at least five years.

Penn Treaty and a unit “do not have the ability to pay future claims without significant rate increases,” Pennsylvania Insurance Commissioner Joel Ariosaid yesterday in a statement. “In the current circumstances, those rate increases simply would not be fair to policyholders.”

The insurer is among at least seven in the U.S. facing forced rehabilitation or liquidation by regulators this year as the recession cuts into capital, according to data collected by the National Organization of Life & Health Insurance Guaranty Associations. That compares with four in 2008. California’s regulator seized Golden State Mutual Life Insurance Co. on Sept. 30 after the company was unprofitable for five straight years.

A liquidation of Allentown-based Penn Treaty, with about $1 billion in assets, would be the largest in at least five years, said Sean McKenna, the association’s spokesman, in an e-mailed statement. “Very few companies of any size have been liquidated in that period,” he said. The association’s data was based on reports from A.M. Best.

Life and health insurers have reported losses and profit drops over the last year as stocks and bonds backing policies fell in value. MetLife Inc., the biggest U.S. life insurer, lost $1.9 billion in the first half, while No. 2 Prudential Financial Inc. posted a $1.1 billion deficit last year. Private investors withheld new funds from the industry late last year, pushing at least 12 insurers to seek U.S. bailouts.

Selling Insurers

Regulators often try to divest all or parts of insurers they seize to prevent liquidation. The Virginia watchdog is seeking to sell the group business of Shenandoah Life Insurance Co. to Assurant Inc., the New York-based provider of health and homeowner insurance. Shenandoah was seized after losing about $50 million on investments in mortgage-finance firms Fannie Mae and Freddie Mac.

Hartford Financial Services Group Inc., the Connecticut- based insurer, accepted $3.4 billion in government cash in June. Philadelphia-based Lincoln National Corp. took $950 million. New York-based MetLife and Prudential of Newark, New Jersey, shunned U.S. aid and raised money from investors.

Guaranty funds are used to pay claims when regulated insurers are unable to meet obligations. Penn Treaty policies will remain active for customers who continue to pay premiums and a state fund will take effect, Ario’s office said. The funds have the right to assess other insurance companies to raise cash. A state court will weigh Ario’s request to liquidate the company, his office said in the statement.

Penn Treaty American Corp., the parent company of the insurer, fell 15 cents, or 54 percent, to 13 cents in over-the- counter trading yesterday. A request for a statement from Penn Treaty was referred to Ario’s office.

Long-term care policies provide coverage to help pay for home-health aides or residence in a nursing home or assisted- living facility. Policyholders with questions may call 1-800- 362-0700 and dial extension 3270.

To contact the reporters on this story: Andrew Frye in New York; Jamie McGee in New York

Last Updated: October 3, 2009 00:00 EDT 




The collapse of real estate is now killing the returns on insurance companies. This will be the first of many failures as one of the pillars of the financial world collapses

ie. the insurance companies.  Say tuned to these earth-shaking news stories.

Also note that insurance failures affect Main Street, like the CIT affair.



Loan Deliquencies continue on the rise with credit call defaults now hitting 5% for the first time. I reported to you on  Thursday that home equity losses (second mortgages now exceed 4%/

Here is the story on the loan delinquencies:

Loan delinquencies hit record highs in 2nd quarter

NEW YORK (AP) — Delinquency rates for three key consumer loan categories hit record highs in the second quarter, according to data released Thursday by the American Bankers Association.

Rising unemployment and falling incomes were the main culprits for the higher delinquency rates for bank cards, home equity loans and home equity lines of credit, the ABA said.

Bank card delinquencies rose to a record 5.01% of all accounts. For home equity loans, 4.01% of accounts were delinquent, while 1.92% of home equity lines of credit were delinquent.

A late payment that is 30 days or more overdue is considered delinquent.

The ABA’s composite ratio, which tracks eight loan categories, also hit a new high of 3.35% of all accounts. That is the highest recorded since the industry group began tracking the rate in the mid-1970s, and tops the previous record of 3.23 set last quarter.


Here are three people talking about the economy and all of them state that the economy is very weak:



You just have to love Ken Langone’s brutal honesty. He says the stimulus package is a fraud, the government is lying to the public and that the worst is ahead of us:

13:55 NYU professor Nouriel Roubini says the U.S. financial system remains in deep trouble -- Bloomberg 
Roubini says there are signs the recession is close to being over, but warns of a U-shaped recovery, says the recovery will be anemic, and repeats that there is a risk of a double-dip recession. Roubini says conditions int he U.S. labor market are awful and overcapacity exists. Weakness in the U.S. dollar could lead to inflation. Roubini is speaking at an event in Istanbul. 
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19:26 Meredith Whitney says credit is still contracting for small businesses; adds that government needs to provide more support - WSJ
In an op-ed piece in the Journal, Whitney says that access to credit is being denied at an accelerating pace. She notes that since the beginning of the credit crisis over two years ago, available credit to small businesses and consumers has contracted by trillions of dollars, a dynamic that is reflected in sluggish consumer spending trends. Whitney also points out that small business loans are hard to find and credit-card lines have been cut by 25% since last year, a trend that may only be halfway through given her expectation that another $1.5 trillion of credit-card lines will be removed from the system by the end of 2010. She argues that this trend is particularly concerning given that credit cards are the most common source of liquidity for small businesses, used by 82% as a significant portion of their overall funding. Whitney goes on to note that the government should provide incentives to smaller banks to accelerate small-business loans on a greater scale.
Reference Link (subscription required) 
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Here is the report on the banks and their non perfoming loans: (Bloomberg)


Banks With 20% Unpaid Loans at 18-Year High Amid Recovery Doubt

Oct. 2 (Bloomberg) -- The number of U.S. lenders that can’t collect on at least 20 percent of their loans hit an 18-year high, signaling that more bank failures and losses could slow an economic recovery.Units of Frontier Financial Corp.,Towne Bancorp Inc. and Steel Partners Holdings LP are among 26 firms with more than one-fifth of their loans 90 days overdue or not accruing interest as of June 30 -- a level of distress almost five times the national average -- according to Federal Deposit Insurance Corp. data compiled for Bloomberg News by SNL Financial, a bank research firm. Three reported almost half of their loans weren’t being paid.While regulators may not force firms on the list to close, requiring them to raise capital and curb loans may impede recovery in Florida, Illinois and seven other states. The banks are among the most vulnerable of a larger group of lenders whose failures the FDIC said could cost $100 billion by 2013.




Here is Bill Holter's commentary yesterday on the jobs number and the 10 yr treasury yield:


Bill H:

To all; the winds are changing! In the past years whenever we had employment numbers come out, Gold and Silver were slaughtered without mercy. Good number, bad number, "in line" or surprise, it didn't matter, the grim reaper would ALWAYS arrive and smash precious metals. It is also of note that the COT numbers show the commercials VERY short at this point and yet Gold and Silver are both close to unchanged after an initial bungee jump immediately after the employment numbers. The commercials must be scratching their heads because the longs are standing tall and not retreating as in the past. THEY are losing control of their rig pure and simple. This action tells me that $1,030 Gold will be surpassed shortly.

Another very interesting event of the last several weeks has/is occurring in the Treasury market. The 10 year yield has come down from the 3.7% area to 3.1% which is curious considering the gross supply at the same time foreigners are backing away from our auctions. This is portraying strength in U.S. sovereign debt coincidental with our debt levels exploding and thus our financial strength becoming more wobbly by the day. The U.S. Treasury is a bankruptcy waiting to happen so who is falling over who to buy Treasuries and push yields down?

I don't have the answer to this but I can guess. The Fed has certainly been a buyer and I am sure futures have been engaged to "bull" Treasuries. Whatever or however, it cannot last. If the "deflationists" are to be believed, a huge slowdown is coming and the rush into Treasuries is safe haven buying. Maybe they are correct but again, they can't be correct for long. If further economic decline is truly the case as I believe, tax receipts that have already imploded will only fall that much further. Falling tax receipts and more fiscal stimulus together are a recipe for being more broke than we already are! The markets are fantastic "chess players" and look down the road many, many moves. Falling tax revenues is not but one move ahead and the Treasury market is missing this? I don't think so!

Unlike the Gold market where manipulating purely with paper cannot work because physical metal must eventually be delivered, the Treasury market can and I believe is being pushed around by "paper". This can and has worked for now, but think of the logic. You print paper to buy high leverage futures on your own debt to keep prices up and yields down. As this "logic" spreads and becomes known, the real buyers will dry up leaving the Fed as the sole buyer. I don't see any other possible outcome other than a destroyed Dollar, collapsing Treasury market and thus hyperinflation. The action in the Gold market looks like it concurs. We are very, very close to the wheels coming off the "rig wagon". Have a nice weekend. Regards, Bill H.




In summary, we had quite a week.  On Monday we had evidence that the usa had engaged in gold swaps something that has been denied over the past 20 years.

We have seen the fortunes on Wall Street fall despite the huge repo pool money filtering into the economy.

We have seen a report where Bernanke's reverse repo formula to retrieve liquidity once the economy grows is completely false.  It uses the money market where Bernanke proposes to swap its toxic assets to the money market funds.  This is where everybody parks their short term money searching for a place to put the funds.

The move would be highly fraudulent as the money market is not Fed money.  This would kill the usa economy immediately if done.

We are now witnessing the final stages in the saga of CIT.   Here is the latest on that more for the complete story:

CIT’s Failure Could Threaten Financial Sector’s Overall Recovery 
October 01, 2009 
Daniel Harrison

Just as the financial services industry seems to have made it past the worst of the economic meltdown, one small lender now threatens to reverse that trend. CIT Group (CIT), a lender to small and medium sized businesses, appears to be on the brink of collapse for the second time this year.

CIT Group averted bankruptcy over the summer, when it secured a $3 billion loan with its bondholders, and managed to tweak a giant tender offer for debt maturing shortly thereafter. The move served as a mere stopgap however, since the lender had a $2.9 billion negative cashflow position at the end of June this year.

With the moment of truth at hand once again, insiders say that CIT is attempting to prioritize nearer-term debt holders, a move which would dilute common stock holders by around 95 percent, leaving them almost wiped out.

Wednesday, traders pushed up the cost of CIT’s credit default swaps by 4 percent, to 26 percent; the implication is that the lender has a 45 percent chance of defaulting on its debt within three months, and an 85 percent chance of defaulting on its debt by 2014.

Meanwhile, CIT is also rumored to be recommending that bondholders approve a pre-packaged bankruptcy plan in case the new debt-exchange doesn’t go through.

Whatever the outcome, it’s clear that CIT doesn’t have the financial muscle to protect all parties involved


I wish you all a grand weekend and I will speak to you on Monday.



Thursday, October 1, 2009

Oct1.09 commentary.

Good evening to all:
I first want to report on the year end  Federal Debt.  It climbed to 11.909 trillion dollars on the last day of the fiscal year.  The day before it was 11.770 so considerable dollars came out of the woodwork.
The next key day to watch for will be Oct 10.09 when the swaps are to unwound..a task that will be impossible due to the huge purchase of bonds with that money created and placed across the big pond.
Tomorrow is  the big jobs reports and our criminal cartel members know the drill...sell gold and silver the day before the announcement and continue with the suppression on that day which is usually the first Friday of the month.
Gold closed down by 8.80 to 999.80.  Silver also fell by 22 cents to 16.40
The gold comex OI rose by 5700 contracts to 458000.  The OI is relatively small with such a  huge rise in gold.
The silver OI contracted by 835 contracts with a big rise in silver pricing.
There is no doubt that smaller commercials are finding the silver arena far too steamy for their liking and they are passing
the torch to the senior commercials cartel members:  JPMorgan as President and HSBC  as Vice.
Scottia Macotta acts in an ancillary way assisting their fellow brethren in any way they can.
Today, there have been a few major stories.
First of all the Dow plummeted by 203 points due to lousy ISM numbers,  a lousy jobless report, and lousy reports of credit
card delinquencies etc.
The plunge protection team with all of their freshly minted dollars could not stem the torrential liquidation of stocks today.
The flight to safety went into the 10 yr bond with a wonderful yield of 3.18%.  Here is a chart on todays 10 yr treasury bond:

What is astonishing is the pronounced, and continued, weakness in the Treasury note/bonds. The yield on the 10 yr T note collapsed to 3.18%. The December contract made new highs for the move…




China, Russia, Brazil, South Korea, and India are demanding a new currency to replace the dollar.  Ben Bernanke  today stated that a move out of the

dollar and into a super currency will weaken the dollar and play havoc to world commodities and other markets.  Here is Ben Bernanke's position on a new

super currency:


Bernanke: A new super-currency would weaken the dollar

By Ronald D. Orol & Nick Godt, MarketWatch 

WASHINGTON (MarketWatch) - Russia and China are advocating the creation of a new super currency, which Fed Chairman Ben Bernanke said Thursday would weaken the dollar if it were to be established. 

"It would weaken the dollar, and we would have to watch for any inflationary consequences of that," Bernanke said during the question and answer segment of a House Financial Services Committee hearing. "I don't see that as a risk as long as we as a country take efforts to manage our risk and keep inflation low." 

Bernanke added that the dollar is not at any immediate risk of losing its status as a reserve currency,however he acknowledged that if the U.S. doesn't put its "economic house in order," risk could eventually grow for the U.S. currency. 

The dollar index , which measures the U.S. unit against a basket of six major currencies, stood at 77.117, compared with 77.047 in earlier trade, and with 77.085 late on Wednesday. 

Bernanke added that he believes the Fed can manage policies to support the U.S. economy without inducing inflation in the short term. "We believe we have the tools and political will to achieve that," he said. 

He responded to a lawmaker who raised concerns about the U.S.'s extensive foreign borrowing, saying that the U.S. needed to save more and spend less. 

"The best way we have to raise our savings rate is to improve our financial position," Bernanke said.

During the second quarter ending in June, the U.S. current account deficit was 2.8% of the U.S. gross domestic product. The current account in the second quarter was $99 billion, which means the U.S. needs to borrow more than $1 billion a day. 

The current account deficit was as high as 6.5% of GDP in 2005.-END-




John Williams gave a flash warning on his ShadowGovernment web site today on the GDP and its sister:  Gross Domestic Income  GDI:

Speaking of a lousy US economy…



September 30, 2009

2nd-Q GDP Decline Narrowed in Revision (to -0.8% from -1.0%)
But GNP and GDI Contractions Deepened
(GNP to -1.0% from -0.8%, GDI to -2.6% from -2.1%)

Annual GDP Contraction Remained Worst of Post-World War II Era


GDP Outlook. The U.S. economy remains in ongoing recession. The U.S. gross domestic product (GDP) series, while heavily relied on by economists, the markets and the media, as the government’s broadest measure of economic activity, remains the worst-quality and most-heavily-politicized economic indicator published. Early reporting is based on significant guesstimation and usually is targeted at consensus economic forecasts. Given the nature of the reporting, annual growth rates are more meaningful indicators than are the highly volatile annualized quarterly rates. The latest revisions tend to signal mounting reporting discrepancies in the series, with the carefully-crafted GDP series continuing to diverge from its theoretically-equivalent but less-widely-followed GDI sibling…



Here are some numbers for the days trading activity

As a pointed out the Dow closed down by 203 points and the Nasdaq by 61 points.

Also:  The dollar rose .49 to 77.20. The euro fell .0128 to 1.4526. The pound sank .0058 to 1.5942, while the yen rose .18 to 89.73.

Crude oil was up slightly at $70.82 per barrel. The CRB dropped 3.94 to 255.55.




In other words, today was deflation day of trading ie.  the dollar rises, gold falls,  oil falls, the stock market falls.


This caught my eye:  Turkey has seen a huge rise in gold purchases this week.  Here is what UBS says on this subject

(and they are probably pretty accurate on this account)


In a valuable observation, UBS reports today that

"Over the past week Turkish gold trading volumes have increased notably, despite the gold price remaining close to $1000/oz. Over the past five days 5.7t of gold have traded on the Istanbul Gold Exchange (IGE), the most since mid August, when gold was trading between $930-950. The premium for gold on the IGE has also turned modestly positive..."

UBS suggests, plausibly, that this may be a sign of geopolitically-motivated demand from Iran. Turkey is thought to be an important conduit for Iranian gold purchases. If correct, this is an extremely important development.



Stratfor suggests that Israel will need to take out Iran's nuclear facilities by the end of November.  In a strange turn of events, the Saudi's have given Israeli permission to fly over Saudi

air space.  Obviously the Saudis fear the Iranians as much as the West.


Here is an update on the CIT situation.  First the trading of CIT on the NYSE:

I think CIT will NOT see the opening bell come Monday morning.

(NYSE) 1.07 0.14 (11.57%) 1:44PM ET

Last Trade:




And now this commentary from Dave Kranzler who follows CIT closely and is the resident guru on the subject:


Dave from Denver…

Wednesday, September 30, 2009

When Is The SEC Going To Investigate Jim Cramer?

CIT's stock price plunged 45% today as the company collapses under the weight of billions of dollars of distressed assets (bad loans) and appears headed for some flavor of bankruptcy. YESTERDAY, however, CIT stock ramped up over 31% as a rumor circulated the market that a $10 billion bank loan was being arranged to save CIT from bankruptcy. The majority of that ramp up occurred AFTER Jim Cramer came on to CNBC and pounded the table for viewers to load up on CIT stock. Here's the link (hat tip to Cramer: CIT to the Moooooon

Anyone who has been following the CIT soap opera knows that Pimco effectively tied up most of the decent collateral, as it engineered (some would say "forced") a $3 billion debt swap in which unsecured bonds were exchanged for super-collateralized bonds. This basically negated any hope of a larger, secured bank debt deal and would put Pimco in prime position to profit handsomely from any future financial reorganization/liquidation.

How come Cramer did not know these facts? Why is Cramer allowed to go onto CNBC and continually issue table-pounding stock buys on imminent train wrecks? He did the same thing a few days before Bear Stearns collapsed. We know by his own admission that he used to front-run stocks on inside information when he managed a hedge fund. How do we know he's not pumping up stocks like CIT and Bear Stearns in order to allow his Wall Street cronies to get out of them before they vaporize?
My question is, WHEN IS THE SEC GOING INVESTIGATE CRAMER AND CNBC? Why is Cramer much different that Madoff? Both are corrupt snake-oil salesmen. I hope some burned investors from the current CIT abortion pursue this matter in court.



We finally get to hear from Bill Holter.  Today, he is  hot under the collar with respect to the FDIC.  Here is his commentary for today:


Bill H:

No problems

To all; did you get that "warm fuzzy" feeling yesterday as the FDIC announced that it has a negative balance in it's insurance fund? Boy do I feel stupid, I wrote yesterday how all we get are lies and spin and the FDIC coughs up a truth furball right in my face! The best part is that we don't even have to worry about FDIC, so they have a negative balance, so what? What government agency doesn't have a negative balance? Fannie and Freddie? The Postal service? Treasury? Who cares anyway? FDIC will just call Treasury who will then get on the hotline to the Fed and order up some fresh FRN's to the tune of $100 billion or so to tide them over. No big deal!

So FDIC told us at the beginning of the year they were "well funded", that was months ago and it's not like once they're out of money they can't get more. Besides, the FDIC has a plan. They are going to whack the banks (they really do need a spanking) for 3 years worth of insurance premiums upfront to replenish the insurance fund. FDIC will get their money from the very same banks that were (are) flat ass broke this time last year but must be flush again with money Hank Paulson sent them under TARP. You do see where this is going don't you? 'Round and 'round it goes, where it stops...

I don't know what all the fuss is about anyway, the annual FDIC premiums are only about $12 billion per year. It's not as if $36 billion upfront is going to bust the banks any more than they already are and besides they weren't really going to lend this money out anyway, so, no problem. Since the banks don't lend anymore, all we need to worry about is whether or not our money deposited with them is safe. Of course its safe! FDIC says it is and if they don't have money they can go to the Treasury. When Treasury runs out, they just go to the Fed. The beauty of this Ponzi scheme is that the Fed can NEVER run out, again no problem.

So walking through this house of mirrors we see that first of all the banking system is one based on "fractional reserves". This mean that they only hold $1 for every $10 (probably 20) they have loaned out but this is no problem because how often do people go to the bank to withdraw EVERYTHING? Not often, maybe only once every 3-4 generations and what are the odds it is our generation? Besides, what are people going to withdraw ALL their money for? Where could they put it that is safer than an FDIC insured account? Don't tell me Gold because that stuff is rare and there's not really enough to go around especially WHEN everyone wants some. And when you withdraw all your money, they only give you pieces paper anyway so why bother? I really don't think people will stand in line for hours on end waiting for pieces of paper, do you?

So we have Ponzi banks backed by a Ponzi FDIC that can tap a credit line at the Ponzi Treasury who in a pinch (been alot of these lately) can go to the all and powerful OZ, I mean the not so Federal Reserve. I don't see any problem here, do you? And the big deal is? The venerable chairman Bernanke has already told us we will never ever run out of Dollars because they have a new...improved...super duper printing press that can meet any and all demands. Sikorsky has been contracted to deliver these new Dollars in a Santa Claus kind of way so I don't see any problems here either.

Some may say that I'm missing the key point. Not a chance! Some say the "value" of the Dollar will plummet resulting in hyperinflation. But "the government will never let this happen" I say. You see, when the Dollar's value begins to slip, the Fed will step in and print more Dollars and use these "new" Dollars to buy "old" Dollars and thus prop up the price of all Dollars! But what if people start buying Gold as an alternative to Dollars? No problem here, the Fed will lease (sell) Gold "in any amounts necessary" paraphrasing Chairman Emeritus Greenspan.

I think the plan here should be that anyone who wants to own Gold should be allowed to, no, encouraged to! We encourage Gold ownership! Yes, that's it, encourage Gold ownership through an ETF or futures contract or whatever, it's the delivery that needs to be illegal. Besides, who would be so stupid as to have Gold delivered? If you get your Gold delivered, FDIC insurance won't cover your money, so you better not deliver. Who would be so stupid as to own "non" FDIC insured Gold anyway? I really don't know what all the fuss is about. It looks to me like all the bases are covered and besides, some VERY important people have already told us "the banking system is sound" AND "a strong Dollar is in our best interest". So in closing I would like to assure you all there are "no problems"! Regards, Bill H.




OK lets go for some economic news of the day:


The first big announcement was the jobless number and it was lousy.  Let me preface this by stating that CNBC and Bloomberg were counting on improved

numbers to correspond to their "calculations" that the economy is growing.  This is why tomorrow's jobs report despite the many plugs will be important.

Here is the report that caused the Dow to get off to a lousy start today:


U.S. jobless claims rise in latest week 

WASHINGTON, Oct 1 (Reuters) - The number of U.S. workers filing new claims for jobless benefits rose last week, government data showed on Thursday. 

Initial claims for state unemployment insurance rose to a seasonally adjusted 551,000 in the week ending Sept. 26 from a revised 534,000 in the previous week. Analysts polled by Reuters were expecting claims of 530,000, which would have been unchanged from the previously reported figure. 

The four-week moving average of new claims fell to 548,000, the lowest since 547,000 reported in the week ending Jan. 24. 

A Labor Department spokesman said there were no unusual factors affecting the latest week's data. 

Continued claims of workers still collecting jobless aid after an initial week of benefits fell to 6.09 million in the week ending Sept. 19 from a revised 6.16 million in the prior week. Analysts were expecting continued claims to rise to 6.16 million.




This caught Wall Street offguard with such a lofty increase until they stated that the entire increase was due to the cash for clunkers program:

U.S. personal spending in August up 1.3 pct 

WASHINGTON, Oct 1 (Reuters) - U.S. consumer spending rose at its fastest pace in nearly 8 years in August, advancing for a fourth straight month, according to a government report on Thursday that pointed to a rebound in spending in the third quarter. 

The Commerce Department said spending jumped 1.3 percent, the largest gain since October 2001, after a revised 0.3 percent increase in July, previously reported as up 0.2 percent. 

That compared to market expectations for a 1.1 percent gain in spending, which normally accounts for over two-thirds of U.S. economic activity. Adjusted for inflation, spending rose 0.9 percent in August, also the largest increase since October 2001, after rising 0.2 percent. 

There are concerns that weak domestic consumption could stall the economy's nascent recovery from its worst recession in 70 years. While analysts agree the economy's healing has started, many worry that high unemployment and the resulting pressure on incomes might translate into a lethargic growth. 

Government data on Wednesday showed spending dropped at a 0.9 percent annual rate in the second quarter after rising 0.6 percent in the January-March period. 

Personal income rose 0.2 percent in August after rising 0.2 percent in July, the Commerce Department said. This was a touch above market expectations for a 0.1 percent rise. 

Real disposable income inched up 0.1 percent in August. Savings declined for a third straight month. Savings slipped to an annual rate of $324.1 billion, with the saving rate easing to 3 percent from 4 percent in July. A measure of inflation closely watched by the Federal Reserve, the year-on-year personal consumption expenditures index excluding food and energy slowed to 1.3 percent after a 1.4 percent increase in July.



The planned layoffs are now lower than last month which caused a little rally in the Dow when this was announced:

US Sept planned layoffs ease as year total tops 1 mln 

NEW YORK, Oct 1 (Reuters) - Planned layoffs at U.S. firms fell in September, showing further signs that the labor market is improving. 

Planned job cuts announced by U.S. employers fell to 66,404 last month, down 13 percent from 76,456 in August, according to a report released on Wednesday by global outplacement consultancy Challenger, Gray & Christmas, Inc. 

September's layoff tally was 30 percent lower than the 95,094 job cuts during the same time last year. This brought the figure for the July-September quarter to 240,233, the lowest since the first quarter of 2008 and marking the fourth consecutive quarter in which job cuts declined from the year prior level. 

But while the rate of layoffs has slowed, the cumulative number of job cuts has climbed to 1.14 million for the period from January through September, well above the 763,090 during the same period a year earlier. 

"The downward trend in planned job-cut announcements is certainly a sign that employers feel more optimistic about future business conditions," said Rick Cobb, the firm's executive vice president, in a statement. 

"It could be a while before this increased confidence results in job creation, but we are going in the right direction," he said… 


But this news report took the wind right out from under the sails of the  Dow and it retreated to its nadir from that point until the closing on the market.

It was the nations ISM report and it tells, on a countrywide basis, the entire manufacturing base whether it is expanding or contracting.

It did expand, but Wall Street was expecting a much larger expansion:

10:00 Sep ISM Manufacturing 52.6 vs. consensus 54.0; Prices Paid 63.5 vs. consensus 66.0
Aug readins were 52.9 and 65.0, respectively. 
* * * * *

U.S. manufacturing sector grew in Sept - ISM 

NEW YORK, Oct 1 (Reuters) - The U.S. manufacturing sector expanded in September for a second consecutive month, although at a weaker-than-expected rate, according to an industry report released on Thursday. 

The Institute for Supply Management said its index of national factory activity eased to 52.6 from 52.9 in August. The median forecast of 75 economists surveyed by Reuters was for a reading of 54. 

August marked the first month of expansion in the sector in more than a year and a half. 

A reading below 50 indicates contraction in the manufacturing sector.


10:00 Sep ISM Manufacturing 52.6 vs. consensus 54.0; Prices Paid 63.5 vs. consensus 66.0
Aug readins were 52.9 and 65.0, respectively. 
* * * * * 




USA construction was up big time as many took advantage of the $8,000 first time grant to home buyers:

U.S. construction spending rises in August 

WASHINGTON, Oct 1 (Reuters) - U.S. construction spending unexpectedly rose at its fastest pace in nearly a year in August, with investment in private residential construction notching its biggest increase in almost 16 years, a government report showed on Thursday. 

The Commerce Department said spending on construction projects rose 0.8 percent, the largest increase since September 2008, after a revised 1.1 percent drop in July that was previously reported as a 0.2 percent decline. 

Analysts polled by Reuters were expecting a 0.l percent fall in overall construction spending in August. 

Compared to August a year ago, construction spending was down 11.6 percent…





Pending home sales rose big time to 6.4% last month as, again,  the first time $8000 grant comes to a close on Nov 30.09:


U.S. pending home sales jump 6.4 pct in August-NAR 

NEW YORK, Oct 1 (Reuters) - Pending sales of existing U.S. homes rose sharply in August, for a seventh consecutive month of gains, reaching the highest since March 2007, data from a real estate trade group showed on Thursday. 

The National Association of Realtors Pending Home Sales Index, based on contracts signed, was up 6.4 percent to 103.8, the longest consecutive month-on-month gain in the history of the series, which began in 2001. 

The index rose from a reading of 97.6 in July and is 12.4 percent above August 2008's level of 104.5. 

Economists polled by Reuters had been expecting pending home sales to rise, but by only 1.0 percent. 

NAR senior economist Lawrence Yun noted that not all contracts are turning into closed sales within an expected timeframe. 

"The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales, and issues regarding complex new appraisal rules," he said in a statement.



It was this next announcement that sealed the fate for the Dow where it finally succumbed to its low, down 203 was the release of credit card delinquencies and

other consumer loans as they hit record levels:


US consumer loans, card delinquencies hit record-ABA

* Q2 late payments rise to 3.35 pct from 3.23 pct 

* Credit card delinquent accounts rise to 5.01 pct 

* ABA says recovery will take time 

NEW YORK, Oct 1 (Reuters) - U.S. consumer loans delinquencies and credit card delinquencies rose to record highs in the second quarter, as more Americans lost their jobs and personal income shrank, the American Bankers Association said on Thursday. 

Fallout from a still deteriorating housing market caused the rate of consumer loan payments at least 30 days late to rise to 3.35 percent in the April-to-June period up from 3.23 percent in the first quarter. 

Delinquencies were the highest since the ABA began tracking the data in 1974. 

Late payments on home equity borrowings set records, rising to 4.01 percent from 3.52 percent on loans and to 1.92 percent from 1.89 percent on lines of credit. 

The overall delinquency rate actually understates consumer pain because it excludes bank-issued credit cards, where credit deterioration was severe…



I would like to remind everyone that tomorrow is the big jobs number.  I will report on Saturday and give a comprehensive review of the week.

see you then


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