Saturday, October 24, 2009

Oct 24.09 commentary...important

Good morning to you all:
 
Before going into an commentary, I would like to see the COT report released at 3:30 yesterday afternoon.
I will comment on this at the conclusion of the report:
 
COT Gold, Silver and US Dollar Index Report - October 23, 2009


-- Posted Friday, 23 October 2009 | Digg This ArticleDigg It! | Share this article | Source: GoldSeek.com 

Gold COT Report - Futures

Large Speculators

Commercial

Total

Long

Short

Spreading

Long

Short

Long

Short

286,864

36,757

61,348

86,225

383,718

434,437

481,823

Change from Prior Reporting Period

-1,350

2,498

7,086

154

1,721

5,890

11,305

Traders

222

68

58

37

52

286

156

 

 

Small Speculators

 

 

 

Long

Short

Open Interest

 

 

75,241

27,855

509,678

 

 

 

-399

-5,814

5,491

 

 

 

non reportable positions

Change from the previous reporting period

 

COT Gold Report - Positions as of

Tuesday, October 20, 2009

 

Gold COT Report - Futures & Options Combined

Large Speculators

Commercial

Total

Long

Short

Spreading

Long

Short

Long

Short

301,473

23,119

150,469

137,949

466,294

589,892

639,882

Change from Prior Reporting Period

-4,170

-1,899

11,715

-1,761

1,980

5,784

11,796

Traders

251

77

140

44

58

335

239

 

 

Small Speculators

 

 

 

Long

Short

Open Interest

 

 

86,965

36,975

676,857

 

 

 

-372

-6,384

5,412

 

 

 

non reportable positions

Change from the previous reporting period

 

COT Gold Report - Positions as of

Tuesday, October 20, 2009

 

 

Silver COT Report - Futures

Large Speculators

Commercial

Total

Long

Short

Spreading

Long

Short

Long

Short

55,740

7,602

22,677

28,261

94,265

106,678

124,544

208

345

-549

359

937

18

733

Traders

83

40

37

33

33

144

86

 

Small Speculators

 

 

 

Long

Short

Open Interest

 

 

28,778

10,912

135,456

 

 

 

-577

-1,292

-559

 

 

 

non reportable positions

Change from the previous reporting period

 

COT Silver Report - Positions as of

Tuesday, October 20, 2009

 

Silver COT Report - Futures & Options Combined

Large Speculators

Commercial

Total

Long

Short

Spreading

Long

Short

Long

Short

57,076

3,869

53,330

35,603

107,690

146,009

164,889

432

166

-1,698

336

1,297

-930

-234

Traders

98

37

54

34

38

158

106

 

Small Speculators

 

 

 

Long

Short

Open Interest

 

 

33,323

14,442

179,332

 

 

 

-803

-1,499

-1,733

 

 

 

non reportable positions

Change from the previous reporting period

 

COT Silver Report - Positions as of

Tuesday, October 20, 2009

 

OK:  in gold with respect to the Long speculators, we see a slight decrease in their longs and a slight increase
in  shorts, so really no real change there.
 
With respect to commercials, we see again a small increase  in their short position.
The small speculators who generally get it wrong, increased their net short position by a large 5800 contracts.
 
So in plain English, the suppliers of the paper gold were the small speculators and to a smaller margin, the
large commercials.  Thus the smaller commercials are bailing out big time as they see the writing on the wall.
 
Lets go to silver:
 
First of all the large speculators on a net basis saw very little change. However the commercials again increased
their short position by a rather large 1297 contracts creating a massive shortfall  to them. 
They were again joined by the small speculators who went short an additional 1499 contracts.
 
So in a nutshell, the silver was accumulated by the longs  and the paper silver was supplied by the larger
commercials and by small speculators.  As in the gold COT smaller commercials are bailing out.
 
I felt it is important to witness the trend. Over the past several weeks, we have witnessed the commercial shorts
rising but in smaller increments as their junior cohorts decided to not play along with their larger opinion leaders.
 
The total short interest in silver is around 685 million oz.  One bank holds over 40% of that shortfall and that
bank is JPMorgan.
 
In gold, the total short position is around 51 million oz and JPmorgan and HSBC have the majority here is well.
 
 
Lets go to yesterdays events:
 
Gold fell marginally by 2.20 to 1057.60.  Silver on the other hand decided not to do her thing and rose by 18 cents.
 
This is as of 1:30 pm when comex closes.  Do not pay attention to the access market, as the bullion banks try to
"paint the tape".  They are trading amongst themselves in order to achieve the impression that gold and silver
are falling as the Dow retreated.
 
 
Open interest on the gold comex fell by a large 10,000 contracts to 506998.  If you remember on Thursday, gold
did a complete reversal for the second day in a row.  I guess that we had a mixture of some longs and certainly
some commercials remove some of their shortfall.
 
The silver comex OI also fell by 1634 contracts to 135,700.   Again weaker longs vacated but so did some of
the commercials.
 
This is why we view the COT report to get the trend.  And the trend is a continual liquidation by the smaller
commercials on both silver and gold.
 
Lets get some numbers on the days events:
 
The yield on the 10 yr T note is 3.48%.

The dollar rose .34 to 75.44. The euro fell .0042 to 1.4996. The pound was pounded, losing .0321 to 1.6306. The yen fell .64 to 92.06.

Crude oil fell 52 cents per barrel to $79.09.

The CRB lost 2.20 to 280.34.

The Dow fell by 109 points after being down 133 points at 3 pm.

 

The move yesterday was to try and revive the falling dollar. It had marginal success.

However for 3 days in a row we saw gold being hit big time and all 3 times gold rising.

On Wednesday, we had a classic outside day reversal.  We saw for 3 days in a row,

the semblance of outside day reversals but fell a little short.  I want to point out that these

events are rare.  To see this occur 3 days in a row, is generally seen once in a century.

As I have stated many times, we have a concerted massive supplier of gold and silver comex

paper coming in contract with a concerted owner of large amts of paper usa dollars.

 

However for some strange reason, the smaller speculators are getting caught in this game

and as always they will pay the price as gold rises. 

We are also witnessing another wedge forming in gold. The upper limit is 1070 but the lower limit is 1050.

The wedge trading is significant because it generally means a major breakout event.  We can have gold break to the upside big

time or down big time.  The last 3 big wedge formations saw gold rise.

 

The silver rise on Friday supports the view, that gold will break the wedge and proceed northbound.

 

From John Brimelow:

 

Reflecting yesterday's post-floor session slide, MarketVane's Bullish Consensus for gold dropped 2 points to 85%. The HGNSI and the GLD ETF were unchanged at 53.8% and 1,108.09411 tonnes respectively.

 

Isn't it strange that OI has been rising on the comex and yet, over in London, no new gold as entered the vaults at GLD.  Strange indeed!

John Brimelow also writes on the Turkey imports of gold:

"Reuters has cited the Turkish Jewellery Association saying Turkey's gold imports for 2009 were likely to be between 75 and 80 tonnes rising to 150-180 tonnes in 2010. The data from the Istanbul Gold Exchange show that Turkey has imported 33 tonnes for the year to September, implying it would need to import around 14 tonnes each month during the last quarter – this is equivalent to the highest monthly tonnage seen this year in July."

My emphasis. Turkish kilo bar premiums appear to be running $3-$4 at present, which certainly suggests an off take acceleration. This is important: in good years this decade the country took in well over 200 tonnes (e.g. twice as much as China). The economy and currency are making a brisk recovery from the shambles of late last year. Turkey will bear watching.

 

end.

 

 

So we now have Turkey increasing its gold imports.  Turkey represents the Arabs.  So we now see, 3 major centres for gold importing:

 

1.China

2.India

3.Turkey

 

As I reported to you on Thursday, China has seen an explosion in their gold demand.  Jewelry demand for 2008 was 326 tonnes.  You can imagine what it will be

for this year.

For these past 2 years, India and Turkey were in the doldrums as far as jewelry was concerned.

It has now changed and these countries have resumed their purchases of gold for jewelry.  However we must be cognizant of the huge increase in demand

for gold for investment demand or what I  refer to as hoarding.

China had 68 tonnes of gold hoarding for 2008.  This will surely rise into triple digits for 2009. 

I also want to point out that this is not central bank hoarding. China officially announces what it hoarded when it wants to.

For six years, they accumulated 454 tonnes and did not announce it until 6 months ago.

 

So it looks from our vantage point that central banks of eastern persuasion knocking on the doors of our two Western

suppliers, England and the USA, for their physical supplies. 

 

Even, tiny Viet Nam is getting into the picture.  Just look at the premium to official gold that citizens there are paying

in order to get physical supplies:

 

Vietnam local gold stood at a $17.37 premium to world gold of $1,059.80 on Friday morning (Thursday $17.23/$1,060.80).

OK lets go to economic events for yesterday:

 

First of all, we got numbers from existing home sales and the numbers were pretty good:

 

10:00 Sep Existing Home Sales 5.57M vs. consensus 5.35M
Aug figure was revised to 5.09M from 5.10M. 
* * * * *

US Sept existing home sales rebound to 2-year high 

WASHINGTON, Oct 23 (Reuters) - Sales of previously owned U.S. homes surged to their highest level in over two years in September, a survey showed on Friday, providing further 
evidence the housing market and economy were on the mend. 

The National Association of Realtors (NAR) said sales surged 9.4 percent to an annual rate of 5.57 million units, the highest level since July 2007, from a downwardly revised 5.09 million units in August. 

Analysts polled by Reuters had expected September sales to rise to a 5.35 million unit pace from the previously reported 5.10 million units in August.

end.

 

However, please keep in mind that many of these sales are foreclosed properties, so you really cannot read too much into these numbers.

 

Bill Holter has given a great summary of the events of the week. He talks about the huge commercial shorts in silver and gold,

the usa dollar in trouble, the wedge forming in gold at the comex between 1050 and 1070 and the general malaise out there.

So here is our weekly summary courtesy of Bill Holter:

 

Bill H…

Time is running out.

To all; as the title implies, time is running out and in several different ways. The so called economic recovery is at the point of "show me" and must pass muster shortly or the public will get more restless than they already are. So far the public has been bamboozled with "things are less bad" or "better than expected", a real recovery is when things are getting better in reality, not in spinworld. A real recovery must be "self sustaining", the entire system today does not fit this description.

Time is running out in the Gold market also. The COT is very short on the COMEX and must get some downside traction quickly because the $1,050-70 level has been lingering. Cash buyers have stepped up and blocked the deluge of "paper sales" designed to create downside havoc. The point here is that "the drop" or correction had better happen pretty quickly or 4 figure Gold mentality will take over. Another mental process that is in danger of occurring is that the $1,050-70 level is beginning to look a lot like a high level consolidation and the overbought readings are beginning to dissipate with no price drop, a COT nightmare! A market that won't go down (even with outside government pressure) will go up once market participants digest these new prices.

The Dollar on the other hand needs a bounce and fast! The longer the Dollar erodes at a pace of .20 ticks per day, the closer we are to the rubber band snapping and a panic beginning. We look forward to massive new Treasury supply next week which should push us to or above the laughable "debt limit" (on a side note, why do we even have a debt limit?). I would say that the Treasury is running out of time to curb borrowings but this will not happen until foreigners completely shut off the credit spigot. As for the Fed, believe it or not, they need to get M3 and MZM money supply growing again or a deflationary accident is just ahead. This can be done by getting the banks to lend and healthy businesses and consumers to borrow, good luck on this one!

The scary thing (as if there weren't enough others to worry about) is that the "shorts" in the stock market have been "run in". The wonderful relief rally that has now lasted close to 8 months is running into resistance on the 25 year chart while volume has been steadily contracting. Volume has not confirmed the current upmove and neither have the insiders as evidenced by their massive sales. What do you suppose will happen once this market turns down and there are no shorts to provide buying support? Yeah, it was wonderful killing the shorts all these months but they won't be there when you need them most!

Without government lifelines the markets would have already imploded and my guess is that something will come along that hamstrings these efforts. It could be anything from soup to nuts ie. foreign blowback at Treasury auctions, fraud exposed, a pissed off public, or whatever, bottom line is that volatility is very ripe to explode. Volatility has been "tamped down" continually for the last 8 months to levels not seen in quite a while, I think volatility expansion from here is a pretty good bet.

Most important of all, time is running out to get your hands on physical Gold and Silver. Once the first paper fraudster is exposed for not having the real deal, game will occur VERY quickly. A day, a week, 2 hours, who knows? The anectdotal evidence, math, and "past performance" of human nature all point to paper Gold being worth zero, don't let the clock run out before you have some IN HAND! Regards and have a nice weekend, Bill H.

 

 

end

 

The situation is getting so bad on Main Street that pension funds are now investing in gold and silver:

Pension Funds to Buy Gold as Insurance, McGuire Says 
2009-10-23 09:14:42.259 GMT

Oct. 23 (Bloomberg) -- Pension funds will increase gold holdings to acquire "financial insurance," pushing prices higher as currencies drop, according to Shayne McGuire, director of global research at the Teacher Retirement System of Texas.

"I think the largest institutions like our own are realizing that we barely own any," McGuire said in an interview in Hong Kong. "The same thing applies to most of the pension funds which manage trillions of dollars in world wealth." Record government debt and interest rates close to zero percent are pushing gold higher for a ninth straight year as investors seek to protect their wealth against the prospect of rising inflation and currency debasement. Teacher Retirement, backed by $95 billion in assets, has launched its first internally managed gold fund, worth $250 million, invested in precious metals, mining stocks and exchange-traded funds.

McGuire is the portfolio manager of this new fund. The fund is "a reflection of our interest in gold," said McGuire, the author of "Buy Gold Now" published in March 2008 that correctly predicted the metal will rally. "That's mostly because of diversification" that benefits our overall portfolio.

Gold represents only 0.4 percent of total global financial assets valued at around $200 trillion in 2007, McGuire said, adding the future focus for the metal was investment demand.

"The interest in the gold sector continues to be strong," said Stephen Goodman, investment banker with New York-based Casimir Capital L.P. "We are pleased to connect a growing number of institutional investors globally with opportunities."

Losses, Writedowns

Gold for immediate delivery climbed to a record $1,070.80 an ounce on Oct. 14 and traded at $1,059.25 at 4:42 p.m. in Singapore. It has risen 47 percent in the past year. Gold for December delivery in New York traded at $1,059.70. McGuire said it's "difficult to estimate how quickly it will rise," and saw "significant upside" in the next two to three years.

The U.S. Dollar Index, which measures the currency against those of six major trading partners, has fallen 7.5 percent this year as President Barack Obama increased the nation's marketable debt 22 percent to $7.01 trillion to revive growth. Financial institutions worldwide have reported credit losses and writedowns of about $1.62 trillion since the start of 2007, when the credit crisis began. Group of 20 governments have pledged about $11.9 trillion to ease credit and revive economic growth, according to the International Monetary Fund.

'Financial Insurance'

"I don't think the question really is what is gold worth but what are currencies not worth," McGuire, 43, said yesterday.

"Consider the tremendous fiscal excess that major governments have made to prevent the world economy from collapsing," hesaid. Owning gold today is "financial insurance," he said.

McGuire, with 15 years of international financial experience, has worked for the seventh-largest pension fund in the U.S. since 2001. He had managed a $2 billion European equity portfolio and was ranked among the best Latin American analysts by Institutional Investor in 1995 and 1996, he said.

Teacher Retirement has nearly 1.3 million public education and higher education employees and retirees participating in the system, according to its Web site.

-END-

 

OK here are some more stories that add flavour to the real world:

 

First, we have a Rhode Island lawyer who is devoting his entire practice to challenging the foreclosures by the banks

due to their faulty claim.  It seems that this is gaining momentum across the usa.  The banks will be in serious trouble

if they cannot get back money lent to finance homes.   Here is the story:

 

Mortgage transfers spur R.I. lawsuits 
01:00 AM EDT on Sunday, October 25, 2009 
By Christine Dunn

A Providence lawyer, George E. Babcock, said his entire practice is now devoted to challenging the legal standing of a private mortgage registration service, the Mortgage Electronic Registration Systems, Inc., known as MERS, to foreclose under Rhode Island law.

Formed in 1995 by the mortgage finance industry, MERS was created to increase profits and efficiency by eliminating the need to record changes in mortgage ownership at local government property registries. MERS is a corporation that also acts as a nominee for lenders and their successors.

Babcock said he wonders why local governments and county deed registries have never challenged the MERS system before, because by allowing lenders to bypass the process of recording mortgage transfers with government entities, "millions and millions" in fees to local government have been lost.

But it took the foreclosure crisis to shine the light on MERS, which some have blamed for enabling the mortgage securitization craze and the questionable lending practices that preceded the housing bust.

Despite being on the losing end of an Aug. 25 decision by Providence Superior Court Judge Michael A. Silverstein, which he has appealed to the Rhode Island Supreme Court, Babcock said he is still filing "two or three" MERS lawsuits a week for clients hoping to stop foreclosure proceedings. Babcock estimates he is pursuing a total of about 100 MERS cases.

More…

 

end.

 

Here is Jim Sinclairs commentary on the "increase" in housing sales. We attach a great article

written by John Schoen, in a Reuters article where talks about the next big default:  the big

commercial real estate! 

a must read for all:

 

Jim Sinclair's Commentary

Housing sales are up? Children as young as 7 years old have been discovered as first time buyers taking advantage of the tax credit.

Foreclosures, due to change in deeds, are booked as sale. Something really smells in that Green Shoot.

'Double bubble' means more real estate trouble 
Developers face huge crunch as downturn hits office buildings, malls, hotels 
By John W. Schoen 
updated 4:29 a.m. MT, Thurs., Oct . 22, 2009

That big whoosh you're hearing is the air rushing out of a commercial real estate bubble.

More than two years into the worst housing crisis in decades, commercial real estate is shaping up as the second half of what some are calling a "double bubble." Owners of shopping malls, hotels, office space and apartment buildings — and the bankers who financed them — face a major crunch over the next two years as the mortgages on those properties start coming due.

Much like homeowners who now owe more on their mortgage than their house is worth, many commercial property owners have seen the value of their properties plummet, increasing the risk of default on hundreds of billions in commercial real estate loans.

That is expected to put more stress on thousands of banks that have already been deemed "not too big to fail."

"I have never seen anything this bad," said Dan Tishman, CEO of Tishman Construction, one of the nation's leading construction and management firms, comparing the current slide to major commercial real estate busts in the 1980s and '90s.

More…

end.

This is a little scary:  the usa is witnessing a surge in job seekers who are 65 yrs and older.

It seems that their pension nest egg dissipated and now they must seek work:

The Number of Job Hunters 65 or Older Skyrockets 
By STEVEN GREENHOUSE 
Published: October 23, 2009

It is well known that during the nation's gale-force recession, many older Americans who dreamed of retirement continued to work, often because their 401(k)'s had plunged in value.

In fact, there are more Americans 65 and older in the job market today than at any time in history, 6.6 million, compared with 4.1 million in 2001.

Less well known, though, is that nearly half a million workers 65 and older want to work but cannot find a job — more than five times the level early this decade and this group's highest unemployment level since the Great Depression.

The situation is made more dire because of numerous recent trends: many people over 65 have lost their jobs as seniority protections have weakened, and like most other Americans, a higher percentage of them took on debt than in previous generations.

More…

 

end.

 

I have told you on countless occasions that banks are not lending out any many.  For the first time ever,

the reserves at the Fed topped 1 trillion dollars. There is just nobody to lend to:

Banks Piling Cash At Fed 
Liz Moyer, 10.23.09, 05:00 PM EDT

Weekly data released Thursday by the Federal Reserve show excess reserves held at the Fed–the equivalent of banks stuffing bills into shoe boxes for storage–topped $1 trillion this week, a record, after climbing steadily since the markets froze up last October.

Last year, there was reason enough for banks to horde cash in preparation for the annual closing the books ritual known as "the turn." The credit markets had frozen up, banks weren't lending to one another, and there was deep uncertainty about the state of the financial markets, prompting the federal government's multibillion-dollar intervention with 19 major banks. Banks were unwilling or unable to risk their cash on longer-term assets.

This year, the fear has subsided, but there are still uncertainties. The 19 banks endured stress tests last spring and have raised $150 billion in new capital since then, but regulators continue to talk about whether capital requirements need further adjustment, meaning banks might have to come up with more.

In a speech in Massachusetts Friday, Federal Reserve Chairman Ben Bernanke talked about the idea of banks holding "contingent capital," which is debt that would convert to equity at a time of stress, giving large "systemically" important banks an extra equity cushion to avoid the same fate as Lehman Brothers.

More…

end.

 

I want to highlight a statement issued by Zero hedge on the Reverse Repo supposedly being tested by the Fed with primary dealers:

Zerohedge.com reported that a recent test revealed a major problem: Though accustomed to doing reverse repos, the Fed will have to conduct them at a far bigger scale than before to affect its big unwind, possibly overwhelming the capacity of the dealers.

In the statement earlier this week, the Fed didn't comment on the relative success of any tests, but it did say it might expand the number of counterparties on these transactions beyond the primary dealers. "The Federal Reserve continues to study this issue, and no decisions have been made regarding the types of firms that may be included. We will engage market participants on this subject as appropriate going forward."

end.

As I pointed out to you on Wednesday, this reverse repo, contemplated to remove the liquidity provided by the Fed will not work.

We are witnessing a huge influx of foreign denominated bonds issued in usa dollars.  This is just  another dollar carry trade and it is becoming so huge that

a removal of the dollar carry trade will bring havoc to the financial world..ie. massive deflation and the banks would have no control.

Ladies and Gentlemen:  the usa dollar carry trade will continue until the comex defaults.

end.

 

This came late last night.  It looks like multiple banks failed.  Here is the story on those bank failures:

Failed U.S. Bank Total Pass Century Mark as FDIC Looks to Boost Reserves

Government Closes 100th Bank of the Year

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In the latest sign of the lasting effects of the financial crisis, federal regulators today closed down the 100th bank this year.

The Office of Thrift Supervision Friday afternoon shut down Partners Bank of Naples, Florida.

Failed Banks Total Tops 100
The FDIC has announced the 100th U.S. bank failure of the year -- Partners Bank of Naples, Fla. The two branches of Partners Bank will reopen on Monday as branches of Stonegate Bank.
(ABC News Photo Illustration)

The Federal Deposit Insurance Corporationwas appointed as the bank's receiver and the FDIC then entered into an agreement with Stonegate Bank of Fort Lauderdale, Fla., to assume the deposits of Partners Bank. When the two branches of Partners Bank open on Monday, they will be branches of Stonegate Bank. As of Sept. 30, Partners Bank had assets worth $65.5 million, the FDIC said, and total deposits of approximately $64.9 million.

Shortly after closing Partners Bank, federal regulators also shuttered American United Bank in Lawrenceville, Ga., the 101st bank to collapse this year.

The Hillcrest Bank, another financial institution in Naples, Fla. has closed as well as the Flagship National Bank, Bradenton, Fla.

The Bank of Elmwood, Racine, Wisconsin, Riverview Community Bank, Otsego, Minnesota and First Dupage Bank, Westmont, Illinois also failed late Friday evening.

Last week, regulators closed San Joaquin Bank in Bakersfield, Calif., the 99th bank to fail.

In all of 2008, federal regulators only shut down 25 banks. This year has already seen four times as many banks go down. Thus far banks have collapsed at an average of about 10 per month.

FDIC chief Sheila Bair today attempted to ease the concerns of bank customers.

"I want to take this opportunity to reassure consumers that their insured deposits are absolutely safe," she said in a video posted on YouTube.

Related

The FDIC provides basic insurance of up to $250,000 per depositor, per insured bank.

"Throughout the FDIC's 75-year history, no insured depositor has ever lost a penny of insured deposits and none ever will," she said.

Despite the rising tide of bank failures, it is extremely unlikely that 2009 will set the record for most collapses in one year. That was set in 1992 when 181 banks went down, the most since theGreat Depression.

"Some banks continue to face serious challenges, but the overwhelming majority will weather this economic storm," Bair said. "There are many signs that our economy is recovering and as the economy heals so will the banking system. Until the healing process is complete, there will be more bank failures, however the number of bank failures we are experiencing is significantly lower than those the FDIC has handled during past crises."

While 2009 has had its share of major bank meltdowns, there have been no collapses this year as big as last year's failures ofIndyMac and Washington Mutual. The largest failure so far in 2009 was Colonial BancGroup of Montgomery, Ala., which collapsed in August with about $25 billion in assets.

The rising number of bank failures has taken a severe toll on the government-backed FDIC, which insures bank deposits up to $250,000 and was set up after the raft of bank failures in the 1930s. As of the end of June, the agency's insurance fund for depositors had dwindled to $10.4 billion, the lowest level in 15 years, and agency officials said the fund balance turned negative in late September.

The FDIC currently has 416 financial institutions on its "problem list," the highest number since June 1994. The agency now expects bank failures to cost the fund $100 billion over the next four years, with the bulk of the costs coming this year and next.

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end.

We will disclose the hit on the FDIC with all of those failures on Monday.  We are getting very little information from the FDIC,

end.

 

And finally, we see the fortunes of NY state in severe trouble.  In the following article, NY delayed funding its pension, forgoing a 8%

discount.  Revenues are just not coming into the state:

New York Delays $959 Million Payment to Pension Fund (Update1) 
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By Michael Quint

Oct. 23 (Bloomberg) -- New York state, facing a $3.1 billion deficit and a cash squeeze, deferred a September payment to its $116.5 billion pension fund, forfeiting more than it would have cost to borrow the needed funds, Bloomberg data show.

By delaying the $959.1 million payment, which isn't legally required until March 1, the state sacrificed an 8 percent annualized discount equal to $6.1 million a month, said Matt Anderson, a spokesman for the Division of the Budget.

"We have been paying in September for at least the past four years and received a discount for the early payments," Anderson said. The installment will be paid before March, he said.

While New York is capable of selling short-term notes for less than the cost of the 8 percent discount, "we want to instead work together with the Legislature and enact a responsible deficit reduction plan that does not require state borrowing," Anderson said in an interview today.

The delayed payment causes no harm to the pension fund that covers 1.05 million workers and retirees, "though it isn't the sort of thing you want to see year after year," said Comptroller Thomas DiNapoli, the plan's sole trustee. The fund has assets equal to 100 percent of its liabilities, as calculated by actuaries, he said.

AA Rating

New York, the third-largest U.S. state by population, has a AA rating from Standard & Poor's for bonds backed by its general obligation pledge. States with lower debt ratings have covered cash shortages by borrowing at costs of less than 2 percent.

Illinois, whose bond rating of AA- by S&P is one level below New York's and three from the highest, borrowed $1.25 billion in August, at costs ranging from 0.77 percent for a seven-month issue to 1.14 percent for notes due in 10 months. California sold $5.98 billion of nine-month notes Sept. 21 that yielded 1.5 percent, even after its bond ranking was cut to A, the lowest of any state. Illinois and California notes are rated SP-1, the second highest level.

With falling tax revenue squeezing budgets and creating cash shortages in states across the U.S., short-term note sales totaled $61.1 billion this year, up 26 percent from the same period a year ago, according to Bloomberg data.

Note Sales

New York isn't planning any note sale or bank borrowing, Budget DirectorRobert Megna said Oct. 15. The state weaned itself from annual note sales in 1995 by issuing $4.7 billion of long-term bonds to pay for accumulated deficits of previous years, according to reports by the Local Government Assistance Corp. and rating companies.

The state has the power to sell short-term notes to cover its cash needs, Lieutenant Governor Richard Ravitch said Oct. 21. Such temporary borrowing would be different from selling bonds to finance budget deficits, a practice he said allowed the state to maintain high spending and contributed to the current budget squeeze.

Benjamin Asher, senior managing director of New York-based Public Resources Advisory Group, the state's financial adviser, didn't return voice mail and e-mail messages requesting comment.

The $3.1 billion deficit for the fiscal year ending March 31 is based on Budget Division projections that will be updated at the end of this month, Anderson said. DiNapoli said Oct. 14 that the gap may be $4.1 billion, based on trends in tax collections and spending.

'Not Held Together'

"This budget has simply not held together," DiNapoli said in a statementaccompanying his office's September cash report. Spending promises made in April, when lawmakers passed a record $133.5 billion spending plan, "are not sustainable in the face of falling revenue," he said.

New York was hard-hit by the credit crunch and firings on Wall Street, where banks and securities firms reported losses of $42.6 billion in 2008 and year-end employee bonuses fell 44 percent, according a January report by DiNapoli's office.

By December, the state's cash balance could be "a little over $2 billion," Paterson said, or less than the $5.1 billion of payments due that month for property tax rebates and aid to school districts, counties and cities.

To close the budget deficit for the current fiscal year, Paterson proposed aplan last week for $1.8 billion of spending cuts and $1.2 billion in actions that would produce revenue this year, though not in later years. The plan would require $2 billion of spending cuts next year.

New York's budget, updated in July, called for $133.5 billion of spending, including federal aid, up 9.8 percent from a year earlier. Spending of state-only funds was projected at $86 billion, up 3.4 percent.

"If no corrective action is taken, we will have to begin to make difficult choices about which payments to delay," Megna said in a statement Oct. 21. Anderson said the state wouldn't default on its debt.

To contact the reporter on this story: Michael Quint in Albany, New York, atmquint@bloomberg.net.

Last Updated: October 23, 2009 13:50 EDT 
 

end.

 

I hope everyone has a wonderful weekend, and I will see you on Monday.

Harvey.

 

 

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